There has been a clear increase in corporate risk around the world, with the average assessment for 160 countries reaching a peak “significant risk” level unseen since the early years of the century, said Coface, in its latest country risk assessments.
This corresponds to a “B” on the credit insurer’s scale of eight levels – A1, A2, A3, A4, B, C, D, E, in increasing order of risk.
A shock wave caused by the vulnerability of the United States and China
With the world’s three largest economies having been affected by aggravated credit risk: after the downgrade of Japan to A2 last March, it is now the turn of the United States and China, both of which are downgraded to A2 and B respectively, according to the Coface report.
In the US, companies are facing cyclical problems: the post-crisis recovery point has been reached and led to a rise in business insolvencies for the first time since 2010. Companies there are facing falling profitability and reduced investment levels underlie the continuous drop in unemployment. Meanwhile in China, despite stable growth, stimulus measures are proving to have a limited effect due to overcapacity and excessive corporate debt levels.
Asian countries’ assessment affected by China exposure
This shock wave from major economies is spreading to several Asian countries. For this reason, the assessments of South Korea, Hong Kong, Singapore and Taiwan have been downgraded to A3, and Malaysia to A4. These countries suffer from strong exposure to the Chinese structural slowdown for exports, tourism and investments. Furthermore, volatility on commodity markets, including oil, is penalising corporate business.
With this recent assessment, Coface also introduced a new, 8th assessment category of “E” for “extreme risk”, recognising that it is necessary to add granularity to its analysis. Some countries downgraded from “D” to the new “E” category are Afghanistan, Armenia, Central African Republic, Cuba, Eritrea, Iran, Iraq, Libya, Sudan, Syria, Timor-Leste, Venezuela, Yemen, Zimbabwe.