Coface Downgrades U.S. as Company Payments "Deteriorate"

The U.S. has been downgraded. 

Paris-based business-to-business insurer and factoring firm Coface Holding announced this week it has downgraded its country rating for the U.S. to A2.

A “deterioration in the payment behavior of U.S. companies in January and February 2008” due to the credit crunch, was the primary cause of the downgrade. Coface projects weak and possibly negative growth for the U.S. in the first half of this year but a “slight recovery” in the second half.

The improvement will be due to economic policy initiatives and demand from “emerging countries, which represent more than 50% of the country’s trading outlets,” according to Coface.

Coface put Canada, Mexico and Japan on its watch list with negative outlooks, as their economies depend on the health of the U.S. economy. Canada’s manufacturing industry sends more 40% of its output to the U.S. so it is especially vulnerable. Mexico relies on the $25 billion that its workers in America send back to the home country. And Japanese exports are slowing down as American demand falls, and the value of the Yen rises.

“These companies have got their backs to the wall,” said Yves Zlotowski, chief economist at Coface, said in a press release. “They are often dependent on a single client, and as such were already suffering from pressure on their margins prior to the current rise in the prices of their inputs, the lively competition now offered by the Chinese sub-contractors and the flat internal demand.”

Last month, Coface announced it saw a 36 percent rise in net income last year, driven by a 22 percent increase in its factoring business line.

For 2008, Coface said it has already noted an increase in “payment defaults in North America beyond sectors directly connected to real estate.” Outside North America, the crisis is less pronounced but “harder credit granted conditions and a growth decline is expected.”