Coface tips more corporate failures in 2019 as global economy dips

August 7, 2019

PARIS -- In an update of its Coface Barometer report, the global credit insurer Coface says it expects a majority of countries to see an increase in corporate insolvencies this year. "World economic growth is expected to decrease from 3.1% in 2018 to 2.7% in 2019, and then remain stable in 2020," it says.

 "The decline in world trade is confirmed for the first half of the year and even if a slight recovery is expected in the second half of the year, it should suffer a 0.7% loss in volume over the year."  

Coface says that metallurgy, distribution, clothing and, particularly, automotive, are among economic sectors in tension, illustrating global economy vulnerabilities.

"Coface is therefore increasing its assessment of the credit risk of automotive companies in 13 countries, for the second time in six months for many of them (and for nearly all automotive sector risk assessments in Europe)," the report says.

"The automotive sector is emblematic of the global economy difficulties. It is at the same time penalised by a cyclical slowdown in many regions, political risks related to trade protectionism and changing consumer behaviour (e.g. high household equipment levels in China and new anti-pollution regulations in Europe)."

 Coface says trade tensions between China and the United States will contribute to a slowdown in the US economy, together with lower domestic demand, with economic growth estimated at 2.5% this year and only 1.3% in 2020, compared to 2.9% in 2018.

"As for China, the trade war has notably led to a fall in its exports to the United States by 10% in the first four months of the year.

"More generally, uncertainties about the outcome of negotiations between the Chinese and US governments and the climate of tension generated by this trade war continue to weigh on the level of business confidence.

"Business confidence indicators in many countries around the world have declined over the past year, particularly in the manufacturing sectors.

"This is the case in Germany where business confidence indicators such as the IFO are at their lowest level in five years in June.

"The annual industrial production rate (in Germany) is on a downward trend (and) Coface forecasts economic growth at 0.8% this year compared to 1.5% last year."

Coface has downgraded its country risk assessment for Germany from A1 to A2, and three economies that are dependent on the German economy have been downgraded as well -- Czechia and Slovakia (both from A2 to A3), and Austria (from A1 to A2).

"The business risk also increases in Iceland (downgraded to A3)," Coface says. "On a more positive note, companies in Uzbekistan (from C to B) and Kyrgyzstan (from D to C) are benefitting from continued relative political and economic openness." (ATI).