Coface identifies risks to monitor in 2016, Canada given risk downgrade

Weak growth, political tensions and company debt in emerging economies are three risks that should be on the radar in 2016, notes a new report from Coface.

“A cautious approach to country risk will be necessary in 2016, since the risks that emerged in 2015 are expected to continue this year,” notes global credit insurer Coface, which released its latest Country Risk Outlook earlier this week.

Coface forecasts global growth will remain soft at 2.7%, up just slightly from 2.5% in 2015. For advanced countries, they will see moderate 2% growth in 2016.

For emerging countries, sluggish growth and increasing company indebtedness have been identified as concerns, while political tensions are gaining ground in both advanced and emerging countries.

“In the emerging world, uncertainties remain high in the Middle East, and the risk of terrorism could lead to stronger nationalist movements,” Coface reports.

The insurer’s political risk index indicates Turkey and Brazil stand out. “The significant deterioration of their economic situations that brought about growing political instability between 2007 and 2015. The country risk assessment of Brazil, whose political crisis and recession are expected to continue in 2016, is now C, the second downgrade in less than a year,” notes the statement.

Emerging countries are also dealing with excessive company indebtedness. “In emerging countries, growth has halved in five years with 3.9% is expected in 2016. Company indebtedness is growing, affected by both the drop in commodity prices and the highly expansionary monetary policies,” the report found.

Advanced countries certainly have concerns of their own, including contending with financial market volatility, the Chinese slowdown and cheap oil.

The report notes, in fact, that risk assessment downgrades include Canada, Brazil and South Africa. (For emerging countries, assessments have been downgraded for, among others, Algeria Gabon, Tanzania and Madagascar.)

“The trend of low barrel prices should continue in 2016, due to the continued surplus of oil supply – in part, attributable to Iran’s return to the market,” Coface points out. “Canada is heavily affected by the drop in oil sector investment and is now assessed A2,” the insurer reports.

Lower oil prices, however, have had a beneficial effect on households and businesses in some advanced countries as a result of helping to revive corporate investment.