The 71 highs and lows of sector risk

On Tuesday, December 29, 2015Category: Ludovic Subran
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​Trading safely also means making sure your clients pay you on time. It so happens that behind something as simple as getting paid there are risks linked to the country where your client is located, as well as the sector in which it operates, on top of course of its own performance. This is why at the end of every quarter, the Economic Research team at Euler Hermes updates its country and sector risk ratings, to provide granularity in understanding the world. We analyze risks in 20 business sectors across the globe. What are the changes we have seen in non-payment risk around the world over the past quarter?

 

71 industries worldwide have improved or worsened in the last quarter of the year. We counted 59 downgrades and 12 upgrades, and you can find all of them on our global sector risk map. Remember, our assessment measures the risk of non-payment in a sector in a country and takes into account four key components: demand, profitability, financing, and business environment in the country/sector at stake. 

These recent downgrades are all linked to major economic hotspots

If you are guessing this has a lot to do with the unabated meltdown in commodity prices and its impact on emerging markets, you might be in the right direction. 

First, cheap oil is taking its toll on net energy exporters. 16 out of the 59 industry downgrades were recorded in the Gulf States, where construction projects were stalled, sometimes indefinitely. Globally, the machinery and equipment sectors felt most of the pain. Expect more nervousness in 2016, as oil and gas continue to overflow and energy giants cancel exploration projects and cut their investment in production. 

The same number of downgrades, 16, is linked to the metal sector.  Producers of industrial metals were quite happy to ride the Chinese boom while it lasted. Now the platinum, aluminum and copper magnates must watch in awe as the world’s biggest exporter makes a slow and not-always-easy switch from a manufacturing based economy to services. If supply of these metals does not fall soon and demand doesn’t pick up the outlook might remain gloomy. Massive overcapacity means the sector might have to brace for a fresh crop of insolvencies, bailouts, sales and takeovers  

Add to that six downgrades in Colombian sectors and four in Turkey – and you get the overall picture.

Then again, there is a sliver of light. Always. So if you are betting that upgrades are linked, for example, to central and eastern European resilience to Russia’s troubles, you might be right. And if one wants to be optimistic about specific industries – take a look at food and retail in Egypt and Cyprus​, for example.

If you have plans to travel soon, enjoy the cheap ticket prices while they last. 

Wishing you a not-too-risky and 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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