omniture

Coface Downgrades United States Rating to A2, and Watch-Lists Japan with Negative Outlook

Coface
2008-04-11 14:12 673

HONG KONG, April 11, 2008 /Xinhua-PRNewswire/ -- One year after watch-listing the United States with negative outlook, Coface, the leading international credit insurance and credit management services group, has downgraded the rating of the United States to A2. Coface found that American companies' payment behaviour deteriorated in January and February, 2008. Tougher access to credit is handicapping the most vulnerable companies trading in sectors that depend on domestic consumption.

"The US economy is likely to be weak in the first half of 2008, affected by a greater-than-expected slowdown of household consumption, which comprises 70 percent of GDP," said Richard Burton, Regional Managing Director, Greater China, Coface. "But there should be a slight recovery in the second half of the year, stimulated by the reactive economic policy and the dynamic demand observed in the emerging countries, which represent more than 50 percent of the country's trading outlets".

The US Economy is Deteriorating

The United States' GDP growth forecast has been revised to 1.5 percent for 2008, down from 2.2 percent in 2007. This reflects an erosion in household confidence, attributable to factors including a gloomy job outlook, a negative wealth effect caused by declining property and financial asset values, higher food and petrol prices, and increasingly difficult mortgage refinancing conditions. Residential construction, and the non-residential component continue fall amid tighter credit conditions.

Japan Is Likely to be Affected and is Now Watchlisted by Coface

Coface has watch-listed the Japan rating (A1) with negative outlook. Export growth is slowing down, handicapped by the fall in American and European demand (accounting for 25 percent and 15 percent of export sales, respectively) and a strong yen, which are reducing companies' price-competitiveness. Bankruptcies consequently rose in 2007 (increased by 18 percent), affecting companies in the construction, distribution and service sectors, as well as small and medium-sized manufacturing companies focusing on the domestic market.

Future Perspective

"If the United States economy continues to slowdown, global payment defaults should increase by 10 percent in 2008 -- a third of the rise that occurred in 2001," added Burton.

Coface began applying preventive measures in the second half of 2007. Risk monitoring has been significantly reinforced. Plus, a 10 percent premium increase in all the new credit insurance contracts has been announced.

Source: Coface
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