Behind this is a lessening in the risk of deflation, both in advanced economies and China, combined with favourable financing conditions in the Eurozone, except for Portugal and Greece.
This marked upturn in business confidence in advanced economies and an economic recovery in the emerging countries forecasts: Russia 1 percent gross domestic product (GDP) growth in 2017 and Brazil 0.4 percent, have led Compagnie Française d’Assurance pour le Commerce Extérieur (Coface) to upgrade the global growth forecast to 2.8 percent and that of global trade to 2.4 percent (after 1 percent in 2016).
However, business activity will remain constrained by high and increasing debt in emerging economies along with the threat of protectionist, political and social risks in advanced and emerging countries.
The Czech Republic (newly upgraded to A2) and Latvia (newly upgraded to A3), are being well integrated in the European chain of production. The Czech Republic is benefiting from solid car sales in the EU.
Israel (newly upgraded to A2) has combined solid growth with low unemployment and inflation. After undergoing an initial downgrade last June, Mozambique was further downgraded to E, “extreme risk”, on account of serious threats to its political stability and recent payment defaults.
In terms of sector risks, the metals sector has for the last three years been most at risk. But there are improvements. Growth in metals production is slowing considerably in China, while prices are increasing, sustained by a high level of activity in the construction and automotive industries in the US and improvements in these sectors in western Europe.
The imposition of customs tariffs on imports of Chinese steel making products has also given respite to steel makers in Europe and Latin America.
In this context, Coface is updating the assessments of the steel sector in Latin America from “very high risk” to “high risk” driven by Brazil and emerging Asia due in particular to the rise in domestic demand in China.
In Latin America, and particularly in Brazil, there is a positive trend in the construction sector due to a rapid fall in central bank interest rates and energy costs, despite uncertainty concerning investment projects. The risk in these sectors has improved to “high”.
In Western Europe, two sectors stand out. In France, the construction sector is now “medium risk”, benefiting from an upturn in the building of new housing due to low interest rates and tax incentive mechanisms.
The UK is facing stagnation in household purchasing power, affected by inflation, downgrading of risk for the retail sector to “high”.
In terms of in its 2017 Africa business credit risk, Coface has upgraded Kenya’s business credit risk from B to A4 (reasonable business credit risk) and Ghana from C to B (fairly high business credit risk).
Coface says South Africa remains under pressure with poor growth and has rated the country at C (high business credit risk). The report says that smaller countries in sub-Saharan Africa are faring better than larger economies.
Coface says Ghana passed its democratic maturity test in December and now has a good level of public finance management while Kenya has seen a boost in tourism and increased public investment.
The report sees Namibia’s exports increasing in 2017, especially uranium, copper and diamonds. Coface says Namibia’s uranium production will increase sharply due to the increased capacity at the Husab mine, making the country the world’s third largest uranium producer.
More broadly, Namibia’s mining sector is expected to pick up against a backdrop of moderate increases in the prices of resources. Specifically, increased production at the Otjikoto gold mine and Tschud copper mine which were commissioned in 2015. Diamond mining is also expected to recover.
The IMF says its global raw materials index is expected to increase by 11 percent in 2017, compared to a 10 percent fall in 2016.
Malawi, rated D (very high business credit risk) experienced a decline in economic activity in 2016 due to the drought. The agriculture sector represents 30 percent of GDP.
Nigeria (D) is expected to experience weak growth in 2017 while Coface expects Angola (D) to experience a slow recovery in activity in 2017 due to the oil sector accounting for almost 40 percent of GDP.
Botswana (A4) is expected to see a small improvement in GDP partly due to an expected improvement in the diamond price. Coface says the DRC’s (D) budget balance is expected to return to surplus in 2017 driven partly by improvements in the copper price.
Mozambique was recently downgraded to the highest risk level of “E” due to government payment defaults. In January, the country defaulted on a $60 million (R772 million) interest payment to bondholders and the political stability remains precautious, says Coface.
Mozambique missed a $119 million payment due late March 2017 on a loan Credit Suisse Group arranged, the second debt repayment the government failed to make in as many months. The $622 million facility was taken out by state-owned ProIndicus and was supposed to fund the purchase of boats and radar systems to protect the country’s Indian Ocean coastline, where companies including Italy’s Eni and US-based Anadarko Petroleum have large offshore gas reserves.
Jacqui Jooste is the chief operating officer and deputy country manager of Coface South Africa, the international trade credit insurer.