Coface, an international credit insurance and credit management services group, yesterday downgraded its ratings for 22 countries and territories, including Hong Kong and Taiwan, while putting the two biggest emerging markets — China and Russia — on its negative watch list for the first time.
After a strong 5.7 percent growth in 2007 and 6.3 percent growth in the first quarter of last year, Taiwan’s economy slowed markedly for the rest of the year, Coface said in a statement.
The slowdown was mainly attributable to a weakening of overseas demand, particularly in China, Hong Kong and above all, the US — Taiwan’s main trading partner as it is the ultimate re-export destination for about 70 percent of the nation’s shipments to China, it said.
Given tight credit and dim sales prospects, companies have delayed investments, Coface said, adding that this raised risks that the Taiwanese economy could contract this year.
The country, having been placed on the negative watch list in December 2006, has been downgraded to “A2,” the statement said.
The subprime-triggered credit crisis took on a new dimension in the last quarter, when businesses in countries that had managed to hold out were also affected, said Richard Burton, Coface’s regional managing director for Greater China.
With a latest global GDP forecast of 0.9 percent this year, the estimated fall in GDP from 2007 to this year will be 3.1 percentage points, which would exceed the 2.5 percentage points seen during the previous credit crisis between 2000 and 2001.
“The sharp slowdown explains the rise of 47 percent in the Coface payment incident index between 2007 and 2008, and we forecast that the credit crisis will only end as this year comes to a close,” Burton said.
“Amid a shrinking credit supply, growth in corporate investments has slowed,” Burton said. “The growth slowdown is expected to continue in the first half of 2009 and the economy could even slip into recession [if it is not already there]. Expansionary monetary and fiscal policies may pave the way for a slight recovery in the second half of the year.”
After peaking in 2007 with 11.9 percent growth, the Chinese economy cooled last year following slowdowns in exports and domestic demand. Aside from exports suffering from sagging demand from industrialized countries, Coface said, there was less dynamism in investment and consumption.
To ensure sustained economic growth, which Coface said could reach 7 percent this year, China has unveiled a 4 trillion yuan (US$585 billion) fiscal stimulus package. Coface warned this could cause a significant upsurge in payment defaults.
“According to Coface’s records, payment performance in Hong Kong, Taiwan and China has been deteriorating and is likely to worsen this year as the economic slowdown tightens its grip,” Burton said. “Companies should be more careful than ever in tracking their buyers’ payment behavior.”