Belgium is out of recession, but still in a weak state

The Expected Default Frequency is at the lowest level in 18 months, but Crédito y Caución expects corporate insolvencies to increase by up to 5% this year, compared to 2009.
Analisis Credito y Caución
Madrid - 07-jun-2010

Belgium continues on its path of modest recovery. According to the National Bank of Belgium [NBB], in Q1 of 2010 GDP grew 1.0% year-on-year and 0.1% on the previous quarter. For the whole of 2009, Belgium output decreased 3%, compared to a 4.1% decline for the Euro area.

While exports still declined year-on-year in the last quarter of 2009 [-2.7%], this was a great improvement on the two-digit rates recorded in previous quarters. The unemployment rate was 8.1% in March practically unchanged since September 2009 and lower than the Eurozone average [10%].

According to the latest NBB figures, loans provided by banks to non financial companies decreased in 2009. While still negative year-on-year, net loans provided by banks increased again, month-on-month, in the first two months of 2010, after 6 months of decline.

Payment morale has improved

According to our the Credito y Caucións observations and experience, businesses in construction, construction materials, retail and finance have improved their payment behaviour during the first quarter of 2010. In contrast, businesses in printing & publishing, timber, flowers & plants, and fruit & vegetables showed a worsening trend.

The Statistics Belgium reports that corporate insolvencies increased only slightly - 0.7% year-on-year - in Q1 of 2010, to 2,584 cases. Those most affected were manufacturing [20.6% increase], transport/other services [11.0%] and retail [4%]. Insolvencies in the construction sector rose a modest 0.7%, while hotels/restaurants saw a 9.4% decrease. In absolute figures, insolvencies are still highest in the transport/other services sector [747], retail [721], hotels/restaurants [472] and construction [406], while manufacturing recorded 170 cases in the first quarter of the year.

Crédito y Caución expects corporate insolvencies to increase by up to 5% this year, compared to 2009. In March 2010, the Expected Default Frequency [EDF] for Belgium decreased substantially after several months of stagnation. While still indicating elevated default risk among listed companies, the Belgian median EDF is at the lowest level in 18 months.

For the current year, the International Monetary Fund [IMF] forecasts Belgian GDP to grow 1.2%, but the unemployment rate [estimated to rise to 9.3% in 2010] could have a negative impact on the still weak domestic consumption in the later part of the year.

View by sectors

The construction industry recorded negative growth of -0.4% in 2008 and -3.4% in 2009. Private and industrial building investment will decrease further in 2010, while public investment continues to support the sector. At corporate level, construction companies are benefiting from the governments supportive measures, including a temporary unemployment scheme by which companies can lay off workers for a certain period of time, during which their personnel costs are taken over by the state.

Thanks to these measures, construction companies have escaped the worst of the downturn so far, but, for some, this could change in the coming weeks as they feel the impact of the lack of revenue but continuing operating costs from that period of inactivity. Crédito y Caucións 2010 forecast is for a contraction of 2.5%, with positive growth not expected until the second half of 2011. Short term outlook therefore remains negative, but the Company does expect an improvement in the insolvency situation by the end of 2010.

The metals industry has suffered as a result of the fall in demand from customer sectors such as construction and automotive. The industry has also been hit by a sharp drop in prices coupled with a collapse in sales, leaving some metals companies in financial difficulty. Companies have also had to considerably depreciate the value of their stock.

In 2009, metals and steel companies and their customers worked mainly with their existing stocks. However, as those stocks became exhausted, orders started to increase again in the second half of 2009. Shipments have also started to rise slightly since Q3 of 2009, but this positive sign has been negated by low prices. That said, since Q4 of 2009, both shipments and prices have increased, and the main players in the market have reported a capacity utilisation of about 70%, after its fall to just 50% in the first half of 2009. Thanks to demand from China, metals consumption is actually at a higher than expected level and, overall, the situation is expected to improve decisively by mid-2010.

Insolvencies in this sector have increased, and, according to Statistics Belgium, the metal products manufacturing subsector recorded a 50% rise. Surprisingly, the overall payment delays in the sector remained quite stable in 2009, with an improvement at the end of 2009 and beginning of 2010. The main reason for this has been the reduction in working capital requirements caused by the drop in activity. Crédito y Caución will monitor developments in the coming months, and hope that the increase in trading activity with its related increase in working capital requirement - will not upset this positive trend.

While the situation is improving, it will take time to reach pre-crisis levels. The current improvement is due mainly to demand from some major emerging markets, but a full recovery will depend on the ability of Europe and the USA to stimulate their domestic recovery. So, while Crédito y caución does not expect a full recovery this year, there is at last some evidence of a modest upturn in the domestic consumption of some European economies and the US, which in turn will support the sectors ongoing recovery.

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