Different markets, different perspectives

In 2009, China recorded a massive 8.7% GDP increase, outperforming all other countries in times of fragile economic conditions. Demand from ‘the middle kingdom’ and other emerging markets has helped to revive exports from EU economies such as Italy, which increased its shipments to non-EU countries in January. Nevertheless, this growth in exports to non-EU markets does not compensate for the sluggishness of intra-EU trade, which still faces rather pessimistic prospects due to modest growth expectations. The EU commission expects a mere 0.7% growth for the EU and Consensus Economics forecasts 1.3% for the Eurozone in 2010. However, apart from Spain and Italy, all other major EU markets - France, Germany and the United Kingdom - are forecast to grow above the EU and Eurozone average.

While the growth expectations of Credito y Caución vary from country to country, credit restriction remains an issue for all European economies. According to the European Central Bank [ECB], loans to the private sector in the Eurozone decreased 0.6% in January 2010 from the previous month. In a recent ECB survey, small and medium-sized companies judged the availability of bank loans to be more difficult in the second half 2009 than in the first half of the year. So, as Crédito y Caución sees signs of a fragile recovery, concerns remain about businesses’ access to credit.

Expected default in Western Europe and USA

One of the most important factors that any business needs to know is the trend in insolvencies in their markets. 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 company’s 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%.

In January 2010 the median EDF continued the generally improving trend that Crédito y Caución had seen for several months. The United Kingdom recorded the best improvement of 12 basis points and is now back to 90 – the lowest level since August 2008. Similar patterns occurred in France, Germany and the Netherlands, while Belgium’s median EDF has remained constant since October 2009. Although the US saw a modest 6 basis points rise compared to December 2009, the January 2010 level is much lower than at the beginning of 2008 due to double-digit monthly decreases in the last couple of months.