G-Grade Q3 2018

New trends in country risks: AU G-Grade Q3 2018

Are you back from your summer break and want to catch up on country risks?

7 significant changes occurred: 2 upgrades (Greece, Myanmar) and 5 downgrades (Turkey, Sri Lanka, Argentina, Iran, Nicaragua). Time has flown by since the end of Q2-2018 (30.06.18) when most of the large trade credit insurer reviewed their country risk grading, but upgrades and downgrades still occur and if you are using credit insurance you might have noted an impact of recent economic changes to your credit limit portfolio.

Main upgrade

  • Greece (G-Grade: from 7.5 to 6.25). This significant improvement + 1.25 reflects the return to a positive GDP trend. Since 2015 and 2016 were negative (-0.3% and -0.2%), 2017 has reached +1.4% and 2018 is expected to reach +2.0% according to IMF economic research department. Strong domestic demand, improving labour market and tourism are the engines leading the upturn, allowing the country to meet its debt payments. In a nutshell, the economy is improving but still fragile.

Main downgrades

  • Turkey (G-Grade: from 6 to 6.75). The strong depreciation of the lira could plunge the economy into a recession. Higher financing costs for companies together with higher costs for imported goods will affect many sectors and inflation will influence domestic consumption. Under the surface, the destabilised current account balance (- 5.4% of GDP according to IMF) and a high short-term debt, reveals the lack of resilience of the Turkish economy. This assessment relies on the insurers’ positions as of 30.06.18 and it is highly possible that the next G-Grade for Turkey (as of 30.09.18) will reveal a new downgrade because the credit insurers are being very cautious about risk at the present time.
  • Sri Lanka (G-Grade: from 6 to 6.75): GDP Growth has decelerated sharply over the past years (5.0 in 2015, 4.5 in 2016 and 3.1 in 2017 according to IMF); depreciation of the Sri Lankan rupee and continuing ethnic tensions are the main risk of the degradation of the country risk situation.

 

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