Trade credit insurer downgrades a record 18 countries

Coronavirus is the latest and most impactful challenge faced by the global economy but trade tensions, geopolitical uncertainty and Brexit also present threats to continuity in 2020. Against this backdrop, Euler Hermes has downgraded a record 18 countries and 126 sector risk ratings due to recession risk and COVID-19-related bankruptcies.

The trade credit insurer says 60% of the 126 sector risk ratings downgraded have also moved from ‘moderate’ to ‘high risk’, marking a dramatic change since the previous record for sector risk downgrades of 70 in Q1 2016.

Ireland, India and Japan are among the countries downgraded. The UK, France and the US are being monitored closely but are yet to be downgraded as their strengthened financial foundations allow for greater ability to back businesses.

Automotive and transportation are the industries most severely affected by downgrades, in 26 and 21 countries respectively, as well as a large proportion in electronics and retail. Western Europe had the highest level of sector rating downgrades. The pharmaceutical and software and IT sectors were the most resilient.

Maxime Lemerle, head of sector and insolvency research at Euler Hermes, said: “We have never known a situation like this for the global economy and downgrading a record number of country and sector risk ratings reflects that.

“But what’s more concerning is that this is just the start and things will get significantly worse before they get better. It goes without saying that businesses will need all the support they can get to enable them to continue to trade – both at home and overseas – with the confidence needed to ride out these economic storms.”

The firm has revised its economic forecasts for 2020. It expects a significant slowdown in global economic growth, with GDP expected to contract by -3.5% this year, twice as much as in 2009. The insurer also forecasts international trade will contract by -15% and insolvencies by will rise by 20%.

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