​Country Risk: 10 ups and downs

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It is time to see who performed well and who did not in reducing non-payment risk by companies in their country. The end of every quarter marks, for us, the moment when we update our country views. In December, we published 31 updated country reports and updated our own country risk map.

We have new risk ratings for ten countries, four upgrades and six downgrades this quarter. Others have kept their ratings neither improving nor worsening this past quarter

 

Before sharing the full list, a quick word about our methodology. At Euler Hermes’ Economic Research Department, we measure the risk of non-payment by companies in a given country. To do that, we look at the medium-term risk by utilizing a six-level scale running from AA (the highest) to D, which measures economic imbalances, business environment, and the likelihood of political hazards.. As for short-term risk, we developed a scale from 1 (best) to 4, which takes into account financing risks and disruptions in the business cycle. The latter is the one you can see in our updated country risk map.

 
 
 

And now onto the changes this quarter and accompanying reports. First, 4 countries have upgraded ratings:

 
 
 

Ireland BB2 > A1

 
 
 

Real GDP growth is strong at +6% in 2015 and a forecast of +5.0% in 2016. The fiscal deficit has rapidly fallen and debt sustainability has improved. Why? Thanks to high nominal GDP growth along with stronger competitiveness gains and better banking sector health.

 
 
 

Cyprus B4 > B3

 
 
 

Cyprus should exit its international bailout program by-mid 2016. The country lifted off capital controls in April this year and successfully returned to the bond markets with low interest rates. The economy has returned to growth, with GDP expected to rise by +1.5% in 2015 and +2% in 2016.

 
 
 

Côte d’Ivoire D3 > C3

 
 
 

In October 2015, the country held presidential elections deemed free and fair. This should engender a period of heightened stability and Côte d’Ivoire could regain its status as an economic power in West Africa. GDP growth is forecast to reach +7% or above in 2016 and 2017.

 
 
 

Honduras C3 > C2

 
 
 

Accompanied by the IMF and benefiting from low oil prices, the government is enhancing fiscal and external positions. Economic growth is set to remain solid in coming years, benefiting from low oil prices, the recovery in the U.S. (remittances, exports) and increased FDI inflows. Business confidence is improving.

 
 
 

On the other hand, 6 countries had their risk ratings downgraded:

 
 
 

Chile A1 > A2

 
 
 

Export revenues have declined strongly due to low copper prices and China slowdown. The CLP has depreciated by -25% vs the USD since its last peak in July 2014. Tightening monetary policy is leading to a rise in interest rates and a credit slowdown. Economic growth will remain slow, around +2% in 2015-2016.

 
 
 

Colombia BB1 > BB2

 
 
 

Export revenues have declined strongly due to the fall in oil prices and to weak developments in neighboring Ecuador and Venezuela. The COP has depreciated by -50% against the USD since the last peak in July 2014. Economic growth will remain below +3% in 2015-2016.

 
 
 

Ecuador C3 > C4

 
 
 

Economic output has been hit by falling oil prices, which accounts for 50% of exports. The economy is forecast to enter recession, with GDP contracting by -1.1% in 2016. Due to dollarization, the Fed’s rate hike will affect credit growth and export competitiveness.

 
 
 

South Africa BB1 > BB2

 
 
 

Structural rigidities limit the economy’s growth. These include, for example, the lack of skilled labor, limited job creation, infrastructure bottlenecks, and continuing balance of payments restraints. GDP is in a protracted period of low growth, and is expected to reach just +2% in 2016 and 2017.

 
 
 

Oman BB1 > BB2

 
 
 

Oil accounts for around 50% of GDP and 80% of government receipts. Low energy prices will lead to large fiscal and current account deficits. High state spending will be managed by increasing public debt. GDP growth will be capped at +4% in 2015-17.

 

 

Brunei BB1 > BB2

 
 
 

Crude oil and natural gas production represent 70% of GDP and more than 90% of total exports. Accordingly, low commodity prices are a serious problem for Brunei. GDP growth decreased in 2015 by an estimated -1.6% and general government net lending (-15% GDP) and the current account balance deteriorated sharply.

 
 
 

Have a quiet, happy 2016.

 
 
 

Ludovic Subran, Chief Economist

 
 
 

Euler Hermes

 
 
 

If you would like to learn more about Euler Hermes in your country or near you, feel free to visit our countries’ pages.

 
 
 

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