Already weakened by numerous factors of uncertainty (Brexit, trade tensions, electoral deadlines), the global economy now faces a new challenge: the Covid-19 pandemic. Not only do we witness a heavy human cost, it is also taking a toll on businesses around the world, disrupting supply chains and business operations, affecting household and market confidence, and severely limiting international trade.
Therefore, according to Euler Hermes, global economic growth in 2020 will register a strong slowdown, reaching only +0.5% (+2.5% in 2019). In parallel, international trade will contract this year at -4.5%. As a result, the risk of non-payments will rise significantly. Euler Hermes expects insolvencies to increase by +14% in 2020. In this weak international landscape, numerous countries and sectors will be hit hard.
Country risks: a compass for anticipating “sudden stop” risks (brutal interruption of capital flows)
Every quarter, Euler Hermes publishes its country and sector risk ratings to measure the development of non-payment risk in trade receivables. We monitor and evaluate a total of 242 countries and 18 sectors every quarter through continuous tracking of 40 short-term and long-term economic and financial indicators. The defaults in Argentina and Lebanon these last few months confirm the necessity of the country risk model in order to measure the vulnerabilities that a crisis, such as the Covid-19 outbreak, can expose.
In the first quarter of 2020, Euler Hermes lowered the grade of 18 countries: Ecuador, Thailand, Indonesia, lndia, United Arab Emirates, Kuwait, Morocco, Kenya, Ghana, Mauritius, Czech Republic, Poland, Romania, Ireland, Slovakia, and Lithuania. This list includes both developed and developing economies. For instance, Brazil is paying dearly in this global economic and health crisis, despite initial hopes that dynamic reforms would accelerate growth. Similarly, Japan, which was already fragile at the start of 2020 following several shocks last autumn, now sees its weaknesses made worse with the Covid-19 pandemic. India is also on the list: The country was already facing numerous structural and cyclical challenges, and these are now being amplified by the current situation.
Ludovic Subran, Chief Economist of Euler Hermes and Allianz warns: