Credit crisis worsens in Europe

According to credit insurer Coface, the worldwide credit crisis is worsening. It is expected to last between 18 months and two years, running into late 2009 or even 2010. But Coface reports that even if the global economy enters a long period of flat growth, companies will adapt. “South Africa remains at an A3 – negative watch rating, which means that as a country it has not been directly affected by the credit crisis as have Europe and the US. But we will experience the indirect effects of the US and European economy slowdown,” says Coface CEO Garth de Klerk. Although the spread of the crisis is less pronounced than in previous crises due to emerging countries’ resilience, the credit squeeze is stronger. The debtor payment defaults index recorded by Coface rose by 36% from January to September 2008, compared with the same period in 2007. Following on from the United States and Spain, the credit ratings of the United Kingdom and Ireland have been downgraded to A2, Iceland has been downgraded to A3 and Italy, France and Hong Kong have been negative watch-listed. “The initial channel of the crisis was the property market, which heavily hit companies in countries where bubbles were in the process of bursting, like in the UK and Ireland,” says Yves Zlotowski, chief economist at Coface. “The worsening of the financial crisis has uncovered new transmission channels. It is notably contributing to sapping the confidence of economic players. The crisis has now reached the Euro zone, affecting Italy and France.” In the United Kingdom, company bankruptcy is up 14% in the first half of 2008. In Ireland, company defaults rose by 75% in the same period. Iceland is faced with the collapse of its banking system on top of the downturn in the property market. Coface forecasts increasing difficulties for companies in these three countries. In Italy, company risk is deteriorating in light of flat growth, rising costs and a credit squeeze. Coface has also noted a sharp rise in the number of defaults by French companies.