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Coface sees the end of the global credit crisis by easing the outlooks for its country ratings, but continues to pay attention to the threat of bubb...

During its 14th Country Risk Conference, Coface announces some 20 upgrades in country ratings.The credit crisis, which will have lasted two years as announced at the conference held in January 2008, has been of an unprecedented magnitude for the past 60 years.Since the second half of 2009, Coface has recorded a net reduction in payment defaults.Payment defaults, still up 19% in the 1sthalf of 2009, declined 40% in the 2nd half.Nevertheless, for 2010 Coface foresees a very soft recovery in developed countries, which is fragile due to the threat of various bubbles.

End of the first “globalisation crisis”


This credit crisis has lasted two years, like the previous crisis and as Coface predicted at the beginning of 2008 when it recorded the initial increase in companies’ payment defaults.But it has been the most violent credit crisis in the past 60 years.Compared to previous crises, the magnitude of the shock is explained by the increasing globalisation of economies:a confidence shock spread everywhere following Lehman Brothers’ bankruptcy, with the seism reaching both finance and industry, Europe or Asia.Even yet in countries not characterised by debt bubbles the record contraction in world trade had a brutal impact on companies.


Nevertheless, the decrease in payment defaults clearly indicates that the credit crisis as such is over.This correlates with the end of the recession in most major industrialised countries at the end of the third quarter 2009.Thus, after having implemented several waves of rating downgrades throughout the crisis, Coface is easing the rating outlooks for all industrialised countries.Exceptions include the United Kingdom, Italy, Portugal, Ireland, Greece and Spain, which remain rated A3, some still under a negative watch.


Yes to recovery, but look out for bubbles


If the end of the credit crisis is confirmed, the 2010 recovery in industrialised countries is of high risk because of threatening bubbles:


  • The bubble in public debt is especially dangerous:it is not so much the risk of sovereign defaults that is feared, but rather the need to quickly implement budget restriction policies that are detrimental to growth and therefore to companies.
  • The overcapacities in China have to be monitored:after strong credit growth that supported Chinese companies, the authorities have decided to restrict the credit supply in overcapacity sectors:this “go and stop” policy, typical of China, could destabilise fragile companies.
  • The asset price bubble (stock markets) can also affect the economy. Sharp stock market volatility can be expected in industrialised countries due to the financial markets optimism, which is out of sync with the real economy’s recovery.


The bursting of these bubbles is likely to generate new negative shocks for companies (“W” scenario).A relapse would affect companies, many of which are now quite weakened after two years of under-activity.Nevertheless, Coface leans towards a soft “L-shaped” recovery scenario and therefore without a relapse in economic activity.For 2010, we foresee world growth of 2.7%, comprised of 1.4% in industrialised countries and 5.3% in emerging countries.


“The 5th credit crisis recorded by Coface was distinguished by the magnitude of the shock but not by its duration, since like all previous crises it ended after two years.The end of the crisis, marked by the decline in payment defaults, does not signal the elimination of all risks.Indeed, bubbles, the source of all of the observed crises, reform at an incredible speed,” explains François David, Coface Chairman,“but the economy is in an upturn phase and we, Coface, are already working with our customers on the recovery, especially in Asia where it is well under way.”

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