coface country risk conference 2012 yves zlotowski, chief economist, coface risks overview

Coface Country Risk Conference 2012

Yves ZLOTOWSKI,Chief economist, Coface

Risks overview


Country risk according to Coface

Country risk measures the influence of a country macro economic and institutional evolution on companies credit risk.

● Country risk assessment Assesses the average risk of payment defaults by companies in a given country

To rate countries, Coface combines economic and political prospects of the country, Coface payment experience and business climate assessment

This evaluation has 7 grades: A1, A2, A3, A4, B, C, D

● Business climate assessment Assesses overall business environment and more precisely whether corporate

information is available and reliable and whether the legal system provides fair and efficient creditor protection

This evaluation has 7 grades: A1, A2, A3, A4, B, C, D


"This time, it’s really different"

World growth and payment incident index

-2

-1

0

1

2

3

4

5

6

7

8

9

19

701

971

19

721

973

19

741

975

19

761

977

19

781

979

19

801

981

19

821

983

19

841

985

19

861

987

19

881

989

19

901

991

19

921

993

19

941

995

19

961

997

19

981

999

20

002

001

20

022

003

20

042

005

20

062

007

20

082

009

20

102

011

(e)

20

12(f

)

%

-60

-30

0

30

60

90

120

150

180

210

240

270

World growth (%, current exchange rate) Payment incident index (base 100= world average 1995-2000)

1st oil shock

Recession in the US

2nd oil shock

Internet bubble and 9/11

Securitization crisis and Fall of Lehman


Heavy indebtedness…

Corporate debt (% of GDP)

Public debt (% of GDP)

0

20

40

60

80

100

120

140

dé

c-9

4

dé

c-9

6

dé

c-9

8

dé

c-0

0

dé

c-0

2

dé

c-0

4

dé

c-0

6

dé

c-0

8

dé

c-1

0

France GermanyItaly SpainUnited-States United Kingdom

0

20

40

60

80

100

120

140

1994

1996

1998

2000

2002

2004

2006

2008

2010

France ItalySpain United KingdomUnited States Germany


External debt (ratios and in chained dollars)in countries under stress

Cumulated public debt in euro zonestressed countries

A different crisis: size matters and jeopardizes possible bail-out

197 233 211392

1820

0

100

200

300

400

500

600

700

800

900

1000

Indonesia1997

Russia1998

Argentina2011

Greece2009

Italy 2011

0

200

400

600

800

1000

1200

1400

1600

1800

2000

External debt / GDP (%)External debt / exports (%)

External debt (in 2011 chained dollars)

517 1016 20522719

477122%

17%

8%4%

39%

0

1000

2000

3000

4000

5000

6000

GR

GR

+P

O+

IR

GR

+P

O+

IR+

SP

Ita

ly o

nly

GR

+P

O+

IR+

SP

+IT

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Bns USD

% of Euro zone GDP


A different crisis: financial integration turns a local crisis into a systemic crisis (main BIS banks exposures)

France Germany

Italy Spain

28%

11%

5%

5%

5%

0% 5% 10% 15% 20% 25% 30%

Poland

France

United Kingdom

Austria

Germany

28%

15%

13%

10%

6%

0% 5% 10% 15% 20% 25% 30%

Portugal

Mexico

Brazil

United States

United Kingdom

17%

16%

7%

6%

5%

0% 5% 10% 15% 20%

Netherlands

Spain

France

United Kingdom

United States

17%

12%

9%

8%

7%

0% 5% 10% 15% 20%

Belgium

Germany

United Kingdom

Italy

United States


Any sovereign debt “treatment” is likely to impact companies

● Argentina-Russia treatment: unilateral defaultCredit crunch + increasing financing costs + recession shock

● Turkey-Brazil treatment: long-lasting deep fiscal adjustmentLate payments by the public sector + anaemic growth

● India-Lebanon treatment: banks are “encouraged” to keep debt exposure

Crowding out effect


2012: Decoupling world growth

3,82,5

7,0-1,8

-3,81,9

4,42,7

7,13,1

1,35,7

2,71,1

5,0

-5 -3 -1 1 3 5 7 9

ave (2003-2007)

2009

2010

2011 f

2012 f

World Advanced Economies Emerging CountriesGDP Growth (%)


The increase of non payment is already felt

Evolution of payment incidents registered by Coface(annual growth rate)

-0,5%

28%

19%

-10% 0% 10% 20% 30%

USA

Euro zone

World


Constrained outlook in the UK, stability in the US

1,7

-0,9

0,9

2

1,8

0,4

-1,5 -1 -0,5 0 0,5 1 1,5 2 2,5

United States

Japan

United Kingdom2012f

2011e

GDP Growth (%)


The United States resist

Business investment and banking credit to corporates (annual growth, %)

Household saving rate and consumption (% DI and annual growth, %)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

mar

s-01

mar

s-02

mar

s-03

mar

s-04

mar

s-05

mar

s-06

mar

s-07

mar

s-08

mar

s-09

mar

s-10

mar

s-11

investment loans to corporate

-4%

-3%

-2%

-1%

0%1%

2%

3%

4%

5%

mar

s-01

déc

.-01

sep

t.-0

2

juin

-03

mar

s-04

déc

.-04

sep

t.-0

5

juin

-06

mar

s-07

déc

.-07

sep

t.-0

8

juin

-09

mar

s-10

déc

.-10

sep

t.-1

1

0%

1%

2%

3%

4%5%

6%

7%

8%

9%

Household consumption - % change - (L)

Household saving rate - % of DI - (R)


Recession in the Euro zone in 2012

0,4

0,7

0,1

0,3

0,1

-0,1

-0,3

-1,2

-1,5

-4

-6

-7 -5 -3 -1 1 3 5

Austria

Germany

Belgium

France

Ireland

Netherlands

Euro zone

Spain

Italy

Portugal

Greece

2012f

2011e

GDP Growth (%)


Germany vs. France

0,7 1,10,4

0,20,4

0,1

-0,4-0,2

0,40,30,3

0,2

-40%

-20%

0%

20%

40%

60%

80%

100%

Italy France Germany

Household consumption Business InvestmentExternal demand Public Demand

Contribution to GDP Growth (average 1997-2010)


Percent of firms exporting to distant markets(%)

Expenditures in R&D and patents(%)

Southern Europe faces structural challenges

0

0,5

1

1,5

2

2,5

3

Germany France Spain Italy

0

13

27

40

53

67

80R&D expenditure totales(% of GDP)

Triadic patents(per million people)

28

22

10

17

26

26

27

23

14

31

37

32

18

30

45

0 10 20 30 40 50

Germany

France

Spain

Italy

UK

US andCanada

other Asia

China andIndia


Country risk assessment


Robust growth in emerging countries

4,4

5

6,7

3,4

1,7

3,7

4,7

3,9

7,5

5,7

3,2

4,2

-6 -4 -2 0 2 4 6 8 10

Emerging Countries

Emerging Asia

Latin America

Emerging Europe

MENA

Sub saharan Africa 2012p

2011e

2010

2009

GDP Growth (%)


Emerging Asia : country risk assessment


Emerging Europe: the trade channel…

Em. Europe: Euro zone in Total Exports of Goods (% 2010)

67% 66%

57% 56% 55% 52%48%

45%41%

35%32% 31% 31%

47%

0%

20%

40%

60%

80%C

zech

Rep

ublic

Slo

ven

ia

Hun

gary

Pol

and

Rom

ani

a

Cro

atia

Slo

vaki

a

Bul

gar

ia

Ser

bia

Latv

ia

Tur

key

Est

onia

Lith

uan

ia

Em

. E

uro

pe a

ve


Emerging Europe: ..and the credit channel will impact CEE countries

0

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

3 500 000

4 000 000D

ec.2

004

Jun.

2005

Dec

.20

05

Jun.

2006

Dec

.20

06

Jun.

2007

Dec

.20

07

Jun.

2008

Dec

.20

08

Jun.

2009

Dec

.20

09

Jun.

2010

Dec

.20

10

Jun.

2011

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

Emerging Countries

Emerging Europe

Exposure of European Banks to Emerging Market entities (Mns USD)


Emerging Europe: Country risk assessment

Coface Country Risk Conference 2012Coface Country Risk Conference 201221 Coface Country Risk Conference 201221

Why do political changes in emerging countries occur now?

● Social changes in emerging countries provide a desire for change

Rising middle classes with increasing demand for their aspirations being addressed

Unequal growth lead to double frustration

No access to employment

No incentive for entrepreneurship

● Cultural changes in emerging countries provide the means to change : Internet access, travelling abroad, lower fecundity…

In authoritarian regimes, changes occur when the governments prove they are unable to respond to this desire for change

In democracies, frustrations are channeled through criminality with parallel organizations that threaten the authority of the State


Fertility rate (births per woman)Internet users (per 100 people)

A strong socio-cultural dynamic of pressure to change in the middle East

0

5

10

15

20

25

30

35

40

45

50

2006 2007 2008 2009 2010

Morocco Russia Tunisia EgyptSenegal Congo (RDC)

Russia

Iran

Tunisia

Morocco

Libya

Egypt

Syria

Kenya

Nigeria

Burkina Faso

Niger

Cameroon

Algeria

Ethiopia

0 1 2 3 4 5 6 7 8

Russia

Ir an

T unisia

Alger ia

Mor occo

Libya

E gypt

Syr ia

Camer oon

Kenya

E thiopia

Niger ia

Bur kina Faso

Niger


Middle East – North Africa: Country risk assessment

coface country risk conference 2012 yves zlotowski, chief economist, coface risks overview

Documents

coface country risk

country risk assessment

given country

coface risks overview

companies credit risk

us slide

country macro economic

coface payment experience