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High risk sectors for international business

High risk sectors for international business  article image

The Coface Group, a world leader in credit insurance, has identified a new “very high risk sector” for companies doing business in Asia.  

In its latest quarterly credit risk survey, Coface downgraded the metal industry in emerging Asia to “very high risk” – the highest risk level.  

The survey was conducted in three major regions of the world – North America, Europe and emerging Asia – covering 14 business sectors.  

Unlike Western Europe and North America, where risk is tending to stabilise, emerging Asia presents a fresh source of concern, the report noted.  

According to the report, the slowdown of activity in China highlights structural difficulties that are affecting companies’ profitability. Sectors suffering from overcapacity now face a restructuring challenge.  

This is the case in the metal industry where the company clean-up process is accompanied by an increase in risk.  

According to Coface’s survey in China (a country producing 49 percent of the world’s steel), 80 percent of companies suffered from payment overdues in 2013, the highest level in the last three years.  

“In this context, the metal industry in emerging Asia is currently the only sector being downgraded by Coface to ‘very high risk,’ the highest risk level.”  

High risk sectors in Western Europe  

Also, the report found several sectors in Western Europe are continuing to show “high risk” despite early signs of stabilization.  

“While the recession appears to be coming to an end in Western Europe, it has not yet produced a significant improvement in sector risk,” the report noted.  

In the first quarter of 2014, the level of credit risk remains particularly high in the metal, automotive and construction sectors.  

The metal industry, in which turnover and profitability are in steady decline, is dependent on the construction and automotive sectors, its main outlets.  

“We remain vigilant with regards to the European automotive sector despite a positive trend, illustrated by six consecutive months of rising sales. Therefore these two sectors remain in Coface’s “very high risk” category.”  

Construction, currently considered "high risk", has seen a fall in its order book at a European level (down 10 percent in January this year, compared with January 2013) and prices are generally in decline.  

Apart from Germany and Denmark, where there is a slight recovery, the sector has been severely impacted by the reduction in the number of planning permissions in Southern Europe, France and even the UK.  

Favourable outlook for North America  

The report found North America continues to forge ahead, following the major economic downturn, with continued improvements in corporate results.  

“Financial solidity is gradually increasing, stabilising the sector risk assessment, the report noted.  

“The majority of sectors are considered ‘medium risk’ and the short-term outlook is favourable in several sectors.  News_Feature_HighRisk_worker-w-16822931

These include the engineering sector, which is attracting increasing investments and strengthening its profitability (average rate of 17.5 percent at the end of 2013) and the automotive sector which benefits from sound financial foundations.  

Credit risk in the textiles and clothing sector is also stable, with 6,000 jobs to be created and more than $4 billion of investment planned in 2014.  

Each quarter, Coface publishes its assessments of country risk for 160 countries. This is based on its unique knowledge of companies’ payment behaviour and on the expertise of its 350 underwriters located close to clients and their debtors.  

 

Credit risk index

Sectors

Emerging Asia

North America

Western Europe *

Agro-Food

*

*

*

Retail

*

*

*

Textile-clothing

*

*

*

Transportation

*

*

*

Electronics, IT **

*

*

*

Automotives

*

*

*

Metals

*

*

*

Pharmaceuticals

*

*

*

Services

*

*

*

Energy

*

*

*

Chemicals

*

*

*

Engineering

*

*

*

Paper-wood

*

*

*

Construction

*

*

*

       

moderate risk

medium risk

high risk

very high risk

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