1

COUNTRY RISK OVERVIEW

Yves ZlotowskiChief Economist, Coface

The Big Growth Transition : it’s painful…and unfair ?

Contribution to GDP Growth, average 2002-2010 (%)

0,0%

0,5%

-0,3

%

0,5%

1,3%

1,2%

1,0%

0,9%

0,5%

0,3%

0,2%

0,4%

0,9%

0,5%

0,4%

0,2% 0,3%

-0,1

%

-0,4

%

-0,3

%0,0%

-0,5%

0,0%

0,5%

1,0%

1,5%

US

Sp

ain

UK

Fra

nc

e

Ja

pa

n

Ita

ly

Ge

rma

ny

Net exports Household consumption Government net spendings

The recovery we dream of

Step 1: cost decrease + restoration of corporate profitability

key issue: unit labor costs

Step 2: financing investment for final external demand (exports)

corporate leverage + credit availability + export specialization

Step 3: exports momentum creates space for increasing

employment

capacity utilization + emerging market outlook

Step 4: domestic final demand increase

consumer confidence + consumer leverage

The recovery we have…

Q/Q GDP GROWTH (%)

-1,0%

-0,8%

-0,6%

-0,4%

-0,2%

0,0%

0,2%

0,4%

0,6%

0,8%

1,0%

06-12 09-12 12-12 03-13 06-13

US

UK

Japan

Eurozone: Q/Q GDP GROWTH

-1,0%

-0,8%

-0,6%

-0,4%

-0,2%

0,0%

0,2%

0,4%

0,6%

0,8%

1,0%

06-12 09-12 12-12 03-13 06-13

Germany

France

Italy

Spain

The recovery we have…

Advanced Economies: Gross Fixed Capital Formation (% yoy)

-20%

-15%

-10%

-5%

0%

5%

10%

Q1 2007 Q1 2009 Q1 2011 Q1 2013

France

Germany

Italy

US

UK

Japan

Business Confidence(normalized, national sources)

-3,0

-2,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

Q1

200

6

Q3

200

6

Q1

200

7

Q3

200

7

Q1

200

8

Q3

200

8

Q1

200

9

Q3

200

9

Q1

201

0

Q3

201

0

Q1

201

1

Q3

201

1

Q1

201

2

Q3

201

2

Q1

201

3

Q3

201

3GermanyFranceItalySpainUS

Advanced economies: better in 2014

Source: Coface

GDP Growth 2014 (%,)

2,5

4,5

1,5

-0,4

0,6

-1,7 -1,6

1,9

3,1

4,8

2,2

1,0

1,8

0,4 0,3

1,41,2

0,1

1,5

0,6

-3

-2

-1

0

1

2

3

4

5

6

Wo

rld

Em

erg

ing

US

A

Eu

rozo

ne

Fra

nce

Ger

man

y

Ital

y

Sp

ain

UK

Jap

an

20132014

US : Yes, they will ?

US' Contri. to GDP Growth (Yearly)

3,4%2,7%

1,8%

-0,3%

-2,8%

2,5% 2,8%1,5%

2,2%

1,8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

InvestmentNet ExportsInventoriesGovernment SpendingPrivate ConsumptionGDP

Forecas

-19%

-14%

-9%

-4%

1%

6%

11%

Q3

2001

Q1

2002

Q3

2002

Q1

2003

Q3

2003

Q1

2004

Q3

2004

Q1

2005

Q3

2005

Q1

2006

Q3

2006

Q1

2007

Q3

2007

Q1

2008

Q3

2008

Q1

2009

Q3

2009

Q1

2010

Q3

2010

Q1

2011

Q3

2011

Q1

2012

Q3

2012

Q1

2013

Household Consumption (%, yoy)Business Investment (%; yoy)

Consumption and unemployment (%)

Insolvency rate (France and Germany)

Germany : « the well-sealed window »

-0,3%

-0,2%

-0,1%

0,0%

0,1%

0,2%

0,3%

0,4%

0,5%

Q20

2

Q20

3

Q20

4

Q20

5

Q20

6

Q20

7

Q20

8

Q20

9

Q21

0

Q21

1

Q21

2

0%

2%

4%

6%

8%

10%

12%

Consumption (%, QOQ, 3M ma)Unemployment (RH)

France: lucky…for now

France Contributions to Real GDP Growth (Yearly)

1,9%

2,7%2,2%

-0,2%

-3,1%

1,6%2,0%

0,0% 0,1%0,6%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

InvestmentNet ExportsInventories

Government SpendingPrivate ConsumptionGDP

Forecasts

France : back to normal ?

Source: Coface

France : social and economic cost of bankruptcies

Credit Growth (%, yoy) Exports in volume (2000=100)

Spain : something is happening…

-30%

-20%

-10%

0%

10%

20%

30%

40%

Jan

20

07

Jul 2

00

7

Jan

20

08

Jul 2

00

8

Jan

20

09

Jul 2

00

9

Jan

20

10

Jul 2

01

0

Jan

20

11

Jul 2

01

1

Jan

20

12

Jul 2

01

2

Jan

20

13

Jul 2

01

3

Corporates

Households

80

100

120

140

160

180

févr

-00

févr

-01

févr

-02

févr

-03

févr

-04

févr

-05

févr

-06

févr

-07

févr

-08

févr

-09

févr

-10

févr

-11

févr

-12

févr

-13

Spain Italy

Greece France

Portugal

Corporate Claims registered by Coface

Sources: Ine, Cerved

Coface Claims ratio vs GDP Growth

(moving average 3 month, 100 = jan. 2007)

-

50

100

150

200

250

300

350

07 08 09 10 11 12

France

Italy

Source : COFACE-

0,5

1,0

1,5

2,0

2,5

-4 -3 -2 -1 0 1 2

Real GDP growth (%)

Cla

ims

rati

o (

per

th

ou

san

d o

f ex

po

sure

)

Claims ratio = 1,1 - 0,3 * GDP growthR2 = 0,29, tstudent = -3,00

Source : COFACE

The Italian puzzle…

Unit Labor Costs 2000=100)

Source: Eurostat Source: Eurostat

Is Europe competitive?

Number of Patents to EPO / Thous. Inh.

273

138 132

6435

7 70

50

100

150

200

250

300

Ger

man

y

Av.

Eu

ro Z

on

e

Fra

nce

Ital

y

Sp

ain

Gre

ece

Po

rtu

gal

95

100

105

110

115

120

125

130

135

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Italy

Spain

Portugal

France

Germany

Cash flow on investment (%) in 2011 and variation since 2009 (%)

Source: Eurostat Source: Eurostat

Credit Bank to corporates, %: Average Growth 2013/2012

Portugal

France

Italy

Norway

Germany

Spain

Sweden

UK

Greece

Ireland

Nether.

0 50 100 150 200 250

+14

+8

+3

+0

31

-17

-9

-4

-21

+7

+106

-18,4%

-8,2%

-6,6%

-4,1%

-3,8%

-3,7%

-0,1%

0,2%

-25

%

-20

%

-15

%

-10

%

-5%

0%

5%

10

%

Spain

Greece

Portugal

Ireland

United Kingdom

Italy

France

Germany

Corporates face difficult access to credit +…

…+ public delays +

Netherlands

Greece

ItalySpain

Portugal

BelgiumFrance

SwedenAustria

Finland

UK

Germany

Denmark

Ireland

0

40

80

120

0 50 100 150 200

Public authorities to business

Bu

sin

es

s t

o b

us

ine

ss

Sources : European commission, Intrum Justitia

R² = 0,8479

Average payment delays between 2008 and 2012, number of days

+ « structure » effects

Number of very small corporates (0-9 empl) / Total (%)

Italy

SpainPortugal

BelgiumUE 27

FranceSweden

Austria Neth.

FinlandIreland

UK

LuxGermany

Denmark

10

20

30

40

50

80 85 90 95 100

Companies /total

Em

plo

ye

es

/to

tal

Source : Eurostat

Business Insolvency Index (basis 100 in 2007)

Source: Eurostat

+ “short cycles” effects

Business Insolvency Index (basis 100 in 2007).

0

50

100

150

200

250

20022003200420052006 200720082009201020112012

0

200

400

600

800

1000France Italy

Germany Spain (RH scale)

0

50

100

150

200

250

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

200

400

600

800

1000FranceItalyGermanySpain (RH scale)

50

100

150

200

250

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

United Kingdom Japan United States

Country risk according to Coface

Country assessment

Assesses the average risk of payment defaults by companies in a given country

This evaluation combines economic and political prospects of the country, Coface payment experience and business climate assessment

This evaluation has 7 grades: A1, A2, A3, A4, B, C, D and can be watch listed

Business climate assessment

Assesses overall business environment and more precisely whether corporate information is available and reliable and whether the legal system provides fair and efficient creditor protection

This evaluation has 7 grades: A1, A2, A3, A4, B, C, D and can be watch listed

Advanced Economies: Country Risk Assessments

Advanced Economies

GDP growth, quarters, YOY

Emerging countries : confirmed slowdown

GDP Growth forecats.

2,9

7

5,5

2,8

2,5

2,3

7,5

5

1,9

1,8

3,8

10,6

7,8

4,8

3,6

0 2 4 6 8 10 12

Brazil

China

India

Russia

South. Af 2000-2011 av.

2013 (p)

2014 (p)

-9

-6

-3

0

3

6

9

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q

2 20

12Q

3 20

12Q

4 20

12Q

1 20

13

BRICS

EMERGING (without BRICS)

Emerging Countries : supply constraints

-10%

-5%

0%

5%

10%

15%

20%

Q1

2006

Q3

2006

Q1

2007

Q3

2007

Q1

2008

Q3

2008

Q1

2009

Q3

2009

Q1

2010

Q3

2010

Q1

2011

Q3

2011

Q1

2012

Q3

2012

Q1

2013

Investment

Household Consumption

BRICS (without China), Growth yoy, %

Exchange rate (% growth)

Emerging countries : financial weaknesses

Current Account and Portfolio flows.

-3

-2

-1

0

1

2

3

4

5

1990

1993

1996

1999

2002

2005

2008

2011

2014

f

-150 000

-100 000

-50 000

0

50 000

100 000

150 000

Curent Account Balance (%GDP, LHS)

Portfolio equity net (Mn USD, RHS)

Exchange Rate vs USD (from May 1 to September 23)

-14,4%

-12,8%

-9,6%

-8,7%

-8,4%

-6,2%

-4,5%

-5,0%

-1,4%

0,9%

1,9%

-20% -15% -10% -5% 0% 5%

India

Indonesia

Turkey

Brazil

South Af.

Thailand

Mexico

Philippines

Russia

Poland

Czech Rep.

India: Large twin deficits drag on growth and financial stability

Share of raw material in total imports (%)

Growth and twin deficits

5,16%

7,95%

17,64%

33,8%

0% 5% 10%

15%

20%

25%

30%

35%

40%

1999

2012

Share of hydrocarbons in total imports

Share of gold in total imports

-0,3

-1,2-1,0

-1,3

-2,3

-2,8 -2,7

-4,2

-4,8

-3,9-4,0

-4,5-4,3

-3,1

-7,7

-7,0

-6,2-5,8

-5,0-5,3

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13e

2013

/14f

0

2

4

6

8

10

12

Current account % GDP

Central government budget balance % GDP

Real GDP % change

Brazil : an infrastructure problem

Brazil : quality of infrastructures (ranking, /144 countries, WEO)

Brazil : GDP Growth and inflation (%)

Turkey

Sth Africa

Mexico

China

India

Russia

Pakistan

Brazil

Colombia

Peru

Argentina

0 10 20 30 40 50 60 70 80 90 100 110 120

108

107

105

101

-1

1

3

5

7

9

11

13

15

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

p

GDP Growth

Inflation

China’s corporate leverage: The time bomb?

China: Public and Private Debt, Fitch estimates

24

%

25

% 49

%

13

6%

19

8%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Gov

ernm

ent

Loca

l uth

.

Gov

t(r

eest

imat

ed)

Priv

ate

Priv

ate

w.

Sha

d. B

ank.

Emerging Markets: Country Risk Assessments

Main Emerging Economies