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Coface UK’s third Country Risk Conference, held in London on June 29, provided an informative trip around the world’s key economies, digging out some salient trends in international trading and country risk.

2004 was a good year for exporters, according to Sylvia Greisman, the head of Coface’s country risk and economic research department, in Paris. In one of the day’s most illustrative presentations, her key message was that abundant liquidity and renewed confidence in emerging countries in 2004 were instrumental in keeping credit risk premiums down, and has “helped restore profitability and solvency for many exporters to these markets”. She told delegates that a “moderate slowdown in global economic growth” is predicted for 2005 by Coface, but underlined that any sharp reduction in world growth would – going by past trends – lead to a rise in payments default globally, as happened in 1975, 1982, 1993 and 2001.

At present, three of the world’s largest economies are showing distinct signs of attrition, said Coface chairman Francois David, who pointed out that the US, in particular, is continuing to run up huge import bills, compounding trade and fiscal deficits of a size that have the potential to destabilise other nations, especially Asian economies that prop up the US dollar. However, in terms of payment default risk, “there is no sign of any significant level of deterioration at present,” Greisman observed.

China was a major focus at the conference. China’s economy grew by a staggering 9.5% in 2004, but David acknowledged that Coface is “a bit worried” as payment defaults have increased slightly. “We write domestic credit insurance – and many of the new Chinese private companies are going bust very quickly,” he noted. Other concerns highlighted by David were the level of non-performing loans held by Chinese banks, and the massive migration trends at work nationally. Greisman said that the legal environment provides “insufficient protection for traders”. Worryingly, commercial disputes, fraud and a lack of morality accounted for 37% of Chinese company overdues in 2004, according to Coface data.

Germany is faring well as an exporting country, particularly in China’s competitive import market. However it is also spending “US$100bn a year on reunification costs”, David underlined. He said that German banks are “now letting down the companies to which they were once lending money,” while Greisman emphasised that the level of payment default in Germany’s construction and retail “remains very high”.

Elsewhere in the European Union (EU), Italy is exhibiting “a strong payment deterioration now in all sectors”, said Greisman, stressing that Coface has placed its A2 country rating for Italy on negative watch since June 2004.

Further east, Central and Eastern Europe’s risk levels were seen to be reducing, with the markets “confidence seen to be reflected in the investment grades accorded to 11 of the region’s countries by Fitch Ratings. Coface speakers flagged up the rising Hungarian payment default risk since June 2003, but Edward Parker, a senior director from Fitch, noted that “you won ‘t see the business crises here that you get in Venezuela or Ukraine – the business standards are on a par with Italy, if not Western Europe”.

In the CIS, an area that Coface perceives as second only to sub-Saharan Africa in terms of its payment default potential, risks are far higher. In Russia, “companies’ payment behaviour is a significant risk”, according to Greisman. “It is very difficult to collect any bad debt, and there is still a lack of company transparency,” she said.

And outside Moscow’s thriving markets, neither Russian banks nor companies are generally able to obtain foreign credit lines, said Rudolf Putz, bank’s operation leader, trade finance, at the European Bank for Reconstruction and Development (EBRD).

Company payment behaviour in non-Japanese Asia is “manageable” according to Coface, which cited growth in the region of 6.4% and 7% cent in 2003 and 2004, and is predicting a further 6.3% GDP rise in 2005. Companies in Indonesia, Korea, Malaysia and Thailand and Singapore have performed well below the global default average, but Hong Kong has crept above the line in the past 12 months.

India’s powerhouse economy exported goods worth US$69.18bn in 2004, and paid US$89.33bn for its imports, yet while Indian company payment behaviour surged way above Coface’s global default average from June 2000 to June 2004, it has fallen significantly below the average. For the most part, international banks are happy to take risk on their Indian counterparts, said Peter Sargent, sales director, corporate transaction services, at Lloyds TSB. “Most western banks say that up to 20 Indian banks are acceptable for letter of credit confirmations. Most people go out to 360 days or less, but can increasingly do three-year tenors,” he said.

Coface’s Greisman underlined that high commodity prices have proved a huge tonic to the Brazilian economy. However a spate of elections across Latin America in 2005 and 2006 are adding uncertainties to regional forecasting, and “could send the sovereign risks higher,” she suggested.

Among the biggest worries for Coface analysts are growing political dissatisfaction among the populaces of Bolivia, Ecuador and Brazil, where the honeymoon is over for Brazil’s president Luiz Inacio da Silva, whose once popular incumbency is now triggering protests from within his own party. Although Brazil is generally scoring well in terms of its company payment behaviour, there is still economic fragility due to the huge level of sovereign financing needs, which are closely linked into interest rates. “A rates rise would hurt Brazil,” Greisman noted.

In Argentina, Coface has classified payment behaviour as “manageable”, but accords the market a “high risk” grading in terms of its banking sector fragilities, its vulnerability to a foreign exchange liquidity crisis and its external over-indebtedness.