Coface Upgrades US, Downgrades Brazil and Thailand

International credit insurer Coface says growth and business leader confidence is returning to the United States.

The prospect for sustained and balanced growth (estimated at 1,5% in 2013 and 2,2% in 2014) has led Coface to improve the United States credit risk rating for business default to A2[1] positive watch, despite the current budgetary pressures.

Coface says business investment in the US is robust. Private consumption, the main driver of growth, is making better progress than before the crisis as households reach the end of their debt reduction.

Margins and profitability in businesses are increasing with debt levels low (55% compared to 85% in the eurozone). However, growth in some sectors (construction materials, copper, paper) remains weak, says Coface.

"Although the government shutdown was a surprise, it should not have a significant long-term effect on business,” says Coface.

Coface says that overall, advanced economies are improving, after two years of recession, and the eurozone will record modest but positive growth in 2014 of 1%.

Within the Economic and Monetary Union, Germany is expected to show a remarkable recovery of 1,8%. France will experience slow growth (0,6%) and the end of the recession is in sight for Spain and Italy. But despite these improvements, the confidence of business leaders has not yet returned in Europe.

The concerns come from the emerging countries, which are facing a structural decline in growth (estimated at 4,8% overall in 2014), even though the BRICS countries will benefit indirectly from the recovery in advanced economies.

Brazil Downgraded: A3 placed on negative watch, due to structural problems

Growth in Brazil is disappointing (estimated at 2,3% this year and 2,9% in 2014) due to less buoyant private consumption and particularly weak business investment. The origins of the economic difficulties are structural. The lack of infrastructure is constraining business. Rising interest rates, in the wake of the Selic, may reach nearly 10% in late 2013, which averts any prospect of a significant recovery.

The slowdown in consumption has weakened industries such as household appliances, automotive and electronics. Rising interest rates and inflated prices for imported components and machinery, due to the depreciation of the real, are made worse by taxes and production costs that remain high.

Payment incidents of Brazilian companies, recorded by Coface, remain at a high level close to the peak of 2009. Both macroeconomic and microeconomic factors justify a negative watch of Brazil's A3[2] assessment.

Thailand Downgraded: A3 placed on negative watch, due to rising household debt

Credit default risks are increasing in Thailand, whose A3 assessment is now on negative watch. Growth there has fallen sharply in 2013 and will remain constrained by household debt (80% of GDP) in 2014. The effects of previous stimulus measures are wearing off. In addition, the country will continue to suffer from sluggish exports, particularly related to its dependence on the Chinese slowdown.