The world on the rebound, but major risks remain

Crédito y Caución still continue to urge caution, not just when embarking on new trading ventures, but also in trade with established customers. Essentially, businesses need to tread more carefully in all their sales transactions.

Madrid - 08-fev-2010

The stabilisation of Europes major economies continues. Germany, the fourth largest economy in the world, has continued its path to recovery in the last quarter, and growth of up to 2% in 2010 is forecast. The contraction of British GDP was lower than expected, and unemployment predictions for this year have been revised downwards. Spains economy appears to be bottoming out after a serious deterioration in the early months of 2009.

After a slight increase of the October 2009 median EDF in nearly all major economies, the November EDF returned to the decreasing trend we have seen for several months. Germany and the Netherlands showed the highest decrease month-on-month (11 basis points), followed by the US (7 basis points) and the UK (4 basis points). Only France registered the second consecutive monthly increase, and then only by one basis point.

The Expected Default Frequency (EDF) is based on listed companies in the markets referred to, and the likelihood of default across all sectors within the next year.  In this context, default is defined as a failure to make a scheduled payment, or the initiation of bankruptcy proceedings.  Probability of default is calculated from three factors: market value of a companys assets, its volatility and its current capital structure.  As a guide, the probability of one firm in a hundred defaulting on payment is shown as 1%.

For Belgium, Germany, the Netherlands and the UK the November 2009 median EDF figure was the lowest so far in 2009. However, the figures for all the markets monitored were still well above their long-term level, indicating high default risk among listed companies. We still expect corporate insolvencies in most major markets to rise in the coming months, albeit less so than in 2009. Crédito y Caución still continue to urge caution, not just when embarking on new trading ventures, but also in trade with established customers. Essentially, businesses need to tread more carefully in all their sales transactions monitoring changes in the payment behaviour of current customers and taking extra care in assessing the financial strength of new prospects.

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