Global economy buoyant in 2018 but risks remain: Coface

Global economic growth is forecast to continue apace in 2018 after political risk failed to cause the damage predicted in 2017, although the year ahead brings its share of risk, according to credit insurer Coface. Coface said despite concerns that 2017 would be mired by protectionism and political tension, the year “held some pleasant economic surprises”. Just 13 countries ended 2017 in recession, compared with 25 in 2016, Coface said. Last year saw global growth of 4.4%, according to Coface’s estimates, up from 1.5% in 2016. It expects 2018 to record global growth of 3.2%, although it is predicted to be stronger in emerging countries at 4.6%. “The risks associated with protectionism did not materialise,” Coface said of last year. The net number of protectionist measures across the world totalled 283 in 2017, down from 374 in 2016. They did, however, increase in the US. Insolvencies in advanced countries recorded a 6% drop in 2017, but Coface said the downward trend is “running out of steam” and is forecast to fall by just 1.8% in 2018. Coface said some countries will not be as lucky. The insolvency rate in the UK, for example, is forecast to rise. Coface said the UK could see a 10% increase in insolvencies this year “in a context of persistent political uncertainties” as the country negotiates its exit from the European Union. Coface said the global upturn in trade led to country assessment upgrades for the Netherlands, now A1 (very low risk), while South Korea, Taiwan, Singapore and Hong Kong were all upgraded to A2. Greece was lifted out of the C (very high risk) category rating to B (fairly high risk), buoyed by the return of consumer and business confidence. Coface said economic growth has also driven improvements in countries where political risk remains high, including Ukraine and Moldova, now both rated C, and Georgia as category B. Coface identified three major risks for 2018: greater supply constraints in advanced economies, banking risk in China, and political risk driven by the number of elections due to be held in 2018. From the second half of 2018, Coface warned that corporates in advanced economies will be at risk of “overheating” as low levels of unemployment – particularly in Germany, the US and central Europe – bring companies close to maximum production capacity. Coface said banking risk is high in China, especially for small and medium-sized banks. It said public investment in 2016 and 2017 went some way to cover weaknesses in China’s economy, in particular overcapacity in steel and high levels of corporate debt in bank credit and shadow banking. Coface said it cannot rule out a resurgence of political risk in 2018 as social frustrations run high in emerging countries including Iran, Lebanon, Russia, Algeria, Brazil and Mexico. The Middle East also carries the weight of volatile oil prices and Coface has lowered its country assessment for Saudi Arabia to C. In its assessment of credit risk in 13 key business sectors across 24 countries, Coface upgraded 15 outlooks, including metallurgy as metal prices rebounded, from 18 revisions. Coface said its sector analysis revealed the potential for a negative impact on the UK as it severs ties with the European Union: “The UK automotive industry is out of step with the rest of western Europe. The first negative signs of the risk of a future hard Brexit – depressed investment, production, and sales caused by a downturn in the confidence of households and investors, explain the deterioration in the sector to high risk” Coface said.

Global economy buoyant in 2018 but risks remain: Coface

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