Coface predicts contrasting fortunes for world economies

Coface has updated its assessment for 11 different countries in its latest Panorama Report on country risk, with mixed fortunes for some of the world’s better known economies including Ireland and South Africa. Ireland’s risk assessment has been placed under positive watch, whilst South Africa’s risk assessment has been downgraded.

Ireland is the UK’s fourth largest export market in the European Union, accounting for 12 percent of total EU exports according to HMRC. Trade with Ireland in April 2013 was worth £1,450 million, a fall on the March total but an increase of 7.5 percent on the figure for April 2012.

Coface suggests there may be light at the end of the tunnel for the Irish economy following the banking crisis. While growth was slower in 2012 because of the European crisis, the downturn was not as severe as had been feared, particularly in the important chemicals, IT and telecoms equipment sectors. Meanwhile, domestic demand is now contracting at a slower rate as residential property prices stabilise and the labour market improves. Coface forecasts growth of 0.9 percent in 2013 and has put a positive watch on its country risk assessment of A4.

However, Coface has warned of weaknesses within Ireland’s important agri-food industry where margins are being squeezed and believes that construction and distribution continue to pose a high credit risk. It also pointed to continued concerns about the damaged banking sector and the rising level of public sector debt which it forecasts will reach 124 percent of GDP in 2013.

The economic picture is less favourable in South Africa, the UK’s biggest trading partner on the African continent that accounts for trade worth up to £10.5 billion each year. Coface believes recovery from the sharp downturn of 2012 is still some way away and has downgraded its country risk assessment from A3 to A4, indicating that it expects more incidents of late payment and insolvency.

Coface’s assessment reflects the impact of poverty and high unemployment on domestic demand, the weakening Rand, which reached its lowest level in four years in early 2013, and the effect of the EU downturn on exports. An additional factor is the increasing social tensions that led to strikes and violence at the Marikana mine in 2012. Despite this, the mining and extraction sector expanded at the beginning of 2013.