Export Risks: Coface Raises Ratings for Four Countries Amid Economic Improvement

The credit insurer has upgraded the ratings of Spain, Portugal, Bahrain, and Cape Verde in its latest quarterly barometer. While the global economy showed encouraging signs of recovery during the first three months of the year, Coface's economists remain cautious.

Two Emerging Markets and Two Eurozone Countries. Coface has raised the risk ratings of Bahrain, Cape Verde, Portugal, and Spain. These changes reflect two strong trends in the global economy at the start of this year. Emerging economies may need to slow down or delay their rate-cutting cycles to avoid the pitfalls of inflation rebounds via imports, thus limiting their economic recovery in 2024 and 2025. However, some regions will still exhibit positive dynamics.

In Southeast Asia, Vietnam and the Philippines are expected to record growth rates exceeding 6%. Despite a slight slowdown, India's GDP is expected to grow by 6%, and that of the African continent by 4%, with acceleration in all major economies: Nigeria, Egypt, Algeria, Ethiopia, Morocco, and, to a lesser extent, South Africa.

Tourism Revival Boosts Spain, Portugal, and Cape Verde

In the Middle East, Bahrain, whose risk rating has been upgraded from D to C (“very high” to “high”), is thriving and saw its GDP grow by 2.1% year-on-year in the first nine months of 2023, mainly thanks to the non-oil sector (80% of the economy), which increased by 3.2%. The credit insurer anticipates that the non-oil sector will continue to drive the kingdom's growth, with exports benefiting from the dynamism of its partners, Saudi Arabia and the United Arab Emirates.

Another emerging country, Cape Verde, has a solid and steady economy that recorded 4.5% growth in 2023, a pace expected to continue this year. Its economy benefits from the revival of the tourism sector, which accounts for 25% of GDP. On one hand, European tourists have returned, and on the other hand, investments are multiplying (hotels, transportation, etc.). This renewed dynamism boosts household consumption. Additionally, Coface highlights that the country is a real democracy whose stability is reassuring. Its rating has been upgraded from B (“fairly high”) to A4 (“adequate”).

Deceleration in the US and China and Rebound in the Eurozone

The fact that Europeans resumed traveling in 2023 also benefited Portugal and Spain, where foreign tourist arrivals exceeded their pre-pandemic levels by 25% and 8%, respectively. The rating upgrade of two Eurozone countries is significant. While US and Chinese growth is expected to continue moderating this year and next, activity will rebound in the Eurozone, primarily driven by Germany, after two years of near-stagnation.

Spain's risk rating has been upgraded from A3 (“satisfactory”) to A2 (“low”). Its economy has shown resilience during recent crises and activity is expected to remain dynamic. The 0.7% GDP growth in the first quarter of 2024 is already higher than expected. Inflation continues to decrease, which has allowed household consumption to recover. The economy has gained competitiveness thanks to lower energy prices and labor market flexibility.

Upward Forecasts

In Portugal, also upgraded from A3 (“satisfactory”) to A2 (“low”), growth is also strong (+0.7% in the first quarter). Private investment is slowing, but household consumption is accelerating thanks to increased disposable income. Finally, in the coming years, activity will benefit from significant European funds (over 5% of GDP in total from 2024 to 2026). The only country “downgraded” (its risk rating dropped from C to D, from “high” to “very high”) is Ecuador, which faces multiple challenges (public debt, technical recession, significant security risks, weak consumption, etc.).

Globally, Coface has revised its growth forecasts upward for 2024, from 2.5% to 2.7%, with stabilization in 2025. The moderate growth in the US and China is expected to be offset by acceleration in several emerging countries. Europe, whose GDP growth was 0.3% in the first quarter of 2024, is expected to restart thanks to the services sector and appears to have emerged from recession. However, these good news should not overshadow the various geopolitical threats to the global economy and the resurgence of protectionism. An increase in protectionist barriers would result in higher costs for businesses and contribute to inflation.