In a Sluggish Global Economy, Emerging Countries Present Greater Risk
The quarterly country risk report from Coface, the trade credit insurance company, forecasts that the worldwide growth rate will fall below three percent for the fourth year in a row.
While the advanced economies are doing much better, emerging countries are a major point of concern.
Economic activity in the United States rose significantly in the second quarter due to consumer spending and investment, prompting a Coface forecast of 2.5 percent growth for 2015. A gradual upturn in activity is also evident in the euro area, which is expected to grow 1.5 percent this year, according to the report.
But emerging countries, where growth is forecast at 3.5 percent for 2015 and 4.2 percent in 2016, are suffering from weak raw material prices and the fall in exchange rates against the dollar. In a number of larger emerging countries, including China, Turkey, and South Africa, economic activity slowed down; in others, notably Russia and Brazil, the economies went into recession.
“The recent Chinese stock market collapse and its consequences on raw material prices have only intensified these weaknesses,” said the report.
The worsening macroeconomic situation in the large emerging countries has caused a rising risk level in several smaller countries.
Among the notable developments in emerging markets, Malaysia was placed on Coface’s negative watch. Malaysia is suffering as a result of the slowdown in the Chinese economy and the fall in raw material prices.
Armenia, is also under negative watch because of its economic and financial dependence on Russia, its political instability, and a sharp deterioration in public finances.
Tunisia, where a positive watch was removed, faces the likelihood of going into recession following the economic blow dealt by the terrorist attacks, particularly in the tourism sector. “The continuing terrorist risk and the increase in social tensions have erased the initial positive effects of the political transition,” said the Coface report.
In Latin America, Brazil was downgraded to a country risk level of B from A4. Brazil’s economy is in recession, with -2.5% growth forecast for 2015 and its political institutions are increasingly unstable. Investments and household consumer spending, the main drivers of growth, both fell.
Ecuador, with 40 percent of its budget revenues and 50 percent of its exports dependent on petroleum, was the second hardest-hit by the fall in oil prices. This is having an impact on public spending and investment. The economy is also highly dependent on Chinese capital, from which loans are secured through mining concessions, oil revenues, and future electricity production.
Chile, downgraded to A3 from A2, is suffering from the fall in copper prices and the slowdown in China, the main destination for Chile’s copper.
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