Canadian Underwriter
News

Oil-dependent economies, including Canada, among countries placed on negative watch list: Coface


June 23, 2015   by Canadian Underwriter


Print this page Share

Canada is among the oil-dependent economies that are suffering from the effects of lower oil prices, prompting global credit insurer Coface to place the country on its negative watch list.

Canada’s A1 country assessment has been placed under negative watch, due to the impact of the decline in oil prices on investment, the risks weighing on the property sector and the negative growth during Q1 2015

“Canada’s A1 country assessment has been placed under negative watch, due to the impact of the decline in oil prices on investment, the risks weighing on the property sector and the negative growth during Q1 2015,” notes a statement from Coface, which released its country risk update, Panorama, on Monday.

Canada, Algeria and Gabon are suffering the effects of lower oil prices and their dependency on the oil sector, notes a company statement.

“During the first quarter of 2015, and for the first time since 2011, the Canadian economy contracted (GDP 0.1%),” states the report. “Consumer spending, which traditionally drives the economy, increased only marginally (+0.1%), whereas investments in non-residential construction and equipment dropped by 2%. Unemployment remained stable at 6.8% in April,” the report notes.

Pointing out that oil represents 27% of total exports, Coface reports that oil price weakness is also affecting oil and gas companies and support activities for oil and gas extraction. “Investment in energy will therefore be postponed.” [click image below to enlarge]

During the first quarter of 2015, and for the first time since 2011, the Canadian economy contracted (GDP 0.1%)

The report notes, however, that federal public finances, which are less dependent on oil sales, should continue to improve towards equilibrium by 2016. “Despite oil and gas industries’ difficulties, Canada’s diversified economy should, therefore, provide new avenues of growth in the coming year. Exports should benefit from the depreciation of the Canadian dollar and restore more balanced growth in favour of the manufacturing industry. However, Canada’s exports recovery will depend on the U.S. economy rebound.”

The Canada-specific risk assessment lists the country’s weaknesses as follows:

• high degree of openness and heavy dependence of the economy of the United States;

• weakening energy exports due to falling prices and U.S. natural gas reserves;

• insufficient research and development spending;

• manufacturing industry’s loss of competitiveness linked to rising power of emerging competitors;

• high household debt;

• weakening energy exports (natural gas resources in the U.S.); and

• inadequate gas distribution infrastructures. [click image below to enlarge]

In Canada, the extractive industries are in difficulty and investment will be delayed, the report says

As for Canada’s strengths, the report lists the following:

• abundant and diversified energy resources;

• prudent management of public finances;

• low level of external debt;

• dynamic demography (migratory flows); and

• a strong, well-capitalized and strictly supervised banking sector.

Other findings in the Coface report include the following:

• The Czech Republic, Portugal and Vietnam – all placed under positive watch in January 2015 – are continuing on the right track, with their economies driven by consumer spending;

• Tanzania is suffering from the rapid decline in its exchange rate against the U.S. dollar, with depreciation causing concern and meaning companies could suffer considerably; and

• the assessment for China, placed on negative watch in January, has been downgraded to A4, and the country’s level of private debt has increased to 207% of GDP in 2014 compared to 130% in 2008. “This level is considered worrying and is far higher than the levels noted in other emerging countries. As such, the solvency of companies in fragile sectors could be affected.”

Overall, Coface has lowered the growth forecast of emerging countries to 4% for 2015 compared to 4.2% this past March. For developed economies, the outlook has improved to a 2% growth forecast for 2015 and 2016, up from 1.5%.


Print this page Share

Related


Have your say:

Your email address will not be published. Required fields are marked *

*