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Coface Revises Country Risk Assessments

10 July 2013 Coface

A glimmer of hope for some advanced economies: Japan, Iceland, and Ireland.

Continuing socio-political risks in South Africa and Tunisia

Coface, the international credit insurer, has noted an improvement in Japan’s economy which is benefiting from the policy of Prime Minister Abe, helping boost activity, at least in the short term. Growth is becoming steadier in Ireland, a member of the Eurozone, as it gradually emerges from its financial crisis.

Activity in Iceland is dynamic but a contraction in activity, financial problems and above all growing political and social pressures are increasing risk in South Africa and Tunisia.

Continuing social and political risks in emerging economies: South Africa and Tunisia both countries downgraded

• In South Africa, downgraded to A4 from A3 negative watch, growth has been gradually weakening and will be below 3% in 2013. Very high household debt, inflation and unemployment are holding back consumption. In addition, companies are losing competitiveness and suffering the repercussion of the recession in the Eurozone, a major trading partner. Social tensions remain high in the context of frustrated expectations among the population, and further strikes cannot be ruled out.

Tunisia, subject to a downgrade to B, is experiencing increased political and social tensions, delaying the drawing up of its Constitution and the holding of legislative and presidential elections, in a society with growing social divisions. The external accounts and the level of currency reserves, with the decline in tourist income, are tight. The application of the latest IMF programme will therefore be a serious challenge for the government.

Improvements in advanced economies: Japan, Iceland and Ireland

• The negative watch has been removed from the A1 assessment for Japan. The announced monetary and budgetary stimuli have had a tangible impact on household consumption. The depreciation of the yen since the end of 2012 has also helped boost Japanese exports which should continue to grow at over 3% in 2013. The Japanese economic climate is improving, in the short-term at least (GDP is expected to grow 1,4% in 2013) and, as a result, the number of company failures is holding steady.

• Whilst some economies are struggling to escape the Western European recession, others are succeeding. Growth in Iceland is vigorous (3,8% in the first quarter 2013, 2,3% forecast for 2013 as a whole), with a reduction in inflation and a stabilisation in unemployment. The country has been upgraded to A3.

Ireland is slowly emerging from its severe banking crisis. Growth was positive in 2012 and will remain so in 2013 (+0,9% for the two years). The country has a comfortable current account surplus, and domestic demand is gradually building. The reform and austerity packages supervised by the “Troika” have progressed without a hitch and should be successfully completed by the end of 2013. Confidence among investors has improved and the country can once again issue bonds on the international market. In this context, Ireland’s A4 assessment has been adjusted to a positive watch.

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