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Coface pledges to shrink its carbon footprint
Coface has set clear social and environmental responsibility (CSR) goals, especially for direct and indirect greenhouse gas emissions, with the first milestone in 2025.Read More
Companies in China report shorter payment delays in 2022 and expect higher economic growth in 2023
Coface’ survey shows that fewer firms encountered payment delays in 2022. 40% of respondents reported overdue, down from 53% in 2021. The average payment delay was shortened from 86 to 83 days in 2022. More information here and in our publication.Read More
COFACE SA: AM Best affirms Coface’s main operating subsidiaries rating at A (Excellent) with a stable outlook
The rating agency AM Best affirmed on 19 May 2023 the A (Excellent) Insurer Financial Strength – IFS rating of Compagnie française d’assurance pour le commerce extérieur (la Compagnie), Coface North America Insurance Company (CNAIC) and Coface Re. The outlook for these ratings remain “stable”.Read More
US: Economic resilience could be further tested by a debt ceiling showdown
The United States could run out of cash as early as June 1 if Congress does not suspend or raise the debt ceiling.
As the deadline approaches and a political compromJanet Yellen recently warned that the US could run out of cash as early as June 1st if Congress does not suspend or raise the debt limit. As a reminder, the debt ceiling is set at 31.4 trillion USD, an amount reached in January 2023. Since then, the federal government has relied to "extraordinary measures" to meet its obligations. Yellen has urged lawmakers to reach an agreement with the Biden administration as soon as possible to avoid financial and economic turmoil. But, while the White House continues to push for “clean” increase of the debt ceiling, Republicans, who took control of the House of Representatives after the 2022-midterm elections, insist on deep spending cuts as a precondition. As the deadline approaches and a political compromise remains distant, a rise in risk aversion could weigh on the US dollar and push Treasuries yields higher. This add a challenge for the US economy, which is already facing high inflation and interest rates and turbulence in the banking sector.
Raising the debt ceiling: from quasi-formality to political weapon
While the U.S. debt ceiling has been regularly raised or suspended in the past, it is now the subject of increased debate and manoeuvring, with opposition parties using it as a political weapon. The standoff over the cap between the Obama administration and Republicans in 2011 was the most striking example. The crisis led S&P to downgrade the US government's credit rating to AA+. Although a national default was avoided, the dollar weakened and Treasury yields rose.
More recently, the limit was last raised in December 2021, when the Democratic Party had a slim majority in Congress. However, brinkmanship over the issue has looked increasingly likely after the Republicans regained control over the House of Representatives following midterm elections in November 2022. On April 19th, the Republican Speaker of the House unveiled a bill linking a USD1.5 trillion debt ceiling increase to an estimated USD4.5 trillion in spending cuts over the next decade. The plan was immediately rebuked by the Biden administration and is unlikely to be approved by the Democratic-controlled Senate. As the deadline approaches, negotiations have resumed between the Democratic administration and the Republicans, but positions remain far apart for the time being.
A default would have cascading consequences
A default would have dire consequences for the financial markets, for the economy, but also on the political level. Republicans and Democrats therefore have an incentive to reach an agreement and a last minute compromise remains likely. However, we cannot completely rule out a default by accident caused by the increased polarization of the US political landscape. A number of workarounds are being debated to avoid a crisis:
- A discharge petition to force a vote on the debt limit: if negotiations between the White House and Congress fail, House and Senate Democrats could force a vote on a debt ceiling increase.
- Joe Biden invokes Section 4 of the 14th Amendment to the Constitution. Under one interpretation of this amendment, the President could override Congress and force the Treasury to issue government bonds to meet its obligations. However, this would likely lead to a constitutional crisis.
- A "commemorative coin": federal law authorizes the Treasury to mint a commemorative platinum coin to circumvent the power of Congress. After depositing the coin at the Fed, the Treasury could pay its bills drawing from an account created by the coin without issuing new debt. This solution seems unlikely because the courts would likely question the legal basis for such a move.
- Issuance « premium bonds”: The Treasury could take advantage of the fact that only principal repayments counts toward the debt ceiling and not interest payments. By issuing new bonds with higher interest rates, the Treasury could reduce the nominal amount of outstanding debt and thus circumvent the debt ceiling. This strategy would obviously be costly because it would increase interest payments.
Although a breach of the debt ceiling is a tail risk, if it occurs, the government will not be able to fully pay its obligations, leading to a de facto default. This would be detrimental to the U.S. economy, both because it would require spending cuts and because the U.S. would likely face turmoil in financial market, with a weakening of the dollar and a significant increase in U.S. Treasury yields. Interest rates would rise across the economy and would likely push stock prices down. In this scenario, a sovereign credit rating downgrade seems inevitable and would trigger ratings downgrades for all U.S. debt issuers. A default would also reverberate through international markets, affecting Treasury securities and other U.S. dollar-denominated assets.
An additional challenge for an economy under pressure
The US economy has shown resilience at the beginning of 2023, with a pick-up in consumer spending and a still-strong labour market. However, the outlook is challenging and uncertain.
Inflation, at 4.9% in April 2023, remains too elevated for the Fed to declare victory. We expect interest rates to remain at restrictive levels throughout 2023, even if a negative impact is already being felt in sectors such as housing and is contributing to softer business investment. In addition, two months after the collapse of Silicon Valley Bank, the failure of First Republic Bank raises renewed concerns about the US regional bank industry. Preliminary evidence suggests that banks are responding to this turmoil by tightening credit further.
Coface expects US GDP growth to slow to 1.2% in 2023. Our baseline scenario predicts that the US economy will narrowly avoid a recession this year, but the succession of adverse events in recent weeks could tip it over the edge.
ise remains distant, the consequences could pose an additional challenge to the U.S. economy, which is already facing high inflation and interest rates and turbulence in the banking sector.
Read our expert's analysis.
7 tips for effective credit management and avoid business risks
Preventing delinquencies or collecting receivables immediately is critical to the survival of many companies. To help you gain insight into your own credit management and improve your business risk prevention, here are 7 tips to better protect your business.Read More
Reopening of China carries risks and opportunities - New podcast episode
Two experts from Coface reveal the risks and opportunities of China for businesses, in light of tumultuous current events.Read More
Numerous challenges for companies in CEE result in an increased number of insolvencies
Corporate insolvencies in Central & Eastern Europe increased in 2022 due to high prices when it comes to energy, inputs, series of prompt interest rate hikes, the highest inflation in decades and the uncertainty related to the war in Ukraine.
Read our analysis and download our full study.
Our clients trust us: Denmaur renews and extends its long-term policy
Good response times, risk underwriting expertise, collaborative approach… Denmaur, one of the UK’s leading paper suppliers, recently renewed its credit insurance agreement with Coface, a long-term partner.Read More
A further tightening of the oil market
In early April, Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman announced combined oil output cuts of more than 1.1 million barrels per day (b/d), surprising the markets. This commitment follows a first production cut announced in October 2022 by OPEC+. It comes in addition of Russia's decision to cut output by around 500,000 b/d in reaction to the implementation of a EU ban on seaborne imports of Russian oil and oil products.
Read our press release here for more.
Coface x Rel8ed: “Nowadays, Data Science is a key component of Risk Management”
Recently acquired by Coface, Rel8ed is a specialized data analytics boutique which develops innovative solutions leveraging Big Data and AI. How can our trade credit insurance and Business Information clients benefit from the pooling of expertise? Bob Lytle, General Manager and founder of Rel8ed, shares more here.Read More
The agreement on cereal shipments in the Black Sea will not be enough to solve all the challenges of the agri-sector in 2023
Although the agreement concerning the cereals transit in the Black sea, first negotiated between Ukraine and Russia under the aegis of Turkey, then renewed in March, has contributed to ease the pressure on cereals supply, its effects are limited and grey areas on the food security of many
> Read our analysis.
Appointment of Grishma Kewada as Coface Country Manager for Singapore
Coface is pleased to announce the appointment of Grishma Kewada as Country Manager for Singapore effective April 1st 2023. She reports directly to Graham Crozier, CEO of Coface South East Asia & India and is based in Singapore.Read More
Silicon Valley Bank’s failure highlights heightened financial stability risks amid monetary tightening
California and federal banking regulators shut down Silicon Valley Bank (SVB) and seized its deposits citing both illiquidity and insolvency. This is the 2nd largest failure of a U.S. financial institution after Washington Mutual in 2008. Read our expert's analysis of the situation.Read More
How United is the Kingdom? The Northern Ireland Protocol and Nicola Sturgeon’s resignation
The U.K. is currently experiencing political turmoil, adding to an already difficult economic situation. Read our brief analysis of the situation.Read More
Türkiye: Earthquakes raise inflation risk and political uncertainty
On February 6, the south eastern provinces of Türkiye were hit by earthquakes that killed over 40,000 people in Türkiye and Syria. This toll, far from being definitive, could double according to the United Nations. Retrouvez notre communiqué de presse sur les retombées économiques de cette catastrophe. Read our press release on the economic impact of this disaster.Read More
FY-2022 results: record net income at €283.1m and 80% pay-out ratio
Coface releases its FY-2022 results: record net income at €283.1m and 80% pay-out ratioRead More
Coface country and sector risks handbook 2023: major trends of the world economy
Coface launches the 2023 edition of its Country & Sector Risks Handbook in a brand new format but as always with our much anticipated country and sector risk assessments.Read More
Appointment of Jonathan STEENBERG as Coface economist for the United Kingdom and Ireland
Coface is pleased to announce the appointment of Jonathan Steenberg as Economist for the United Kingdom and Ireland. He reports to Bruno De Moura Fernandes, head of macroeconomic Research at Coface and is based in London.Read More
From excessive pessimism to excessive optimism - Coface Barometer Q4 2022
2023 starts with good news on the macroeconomic front. First, Europe has avoided a recession that looked long promised. Second, the prospect of a rebound in China in the second half of the year, also raises hopes for the global economy. In this context, Coface's risk assessments have changed only slightly, with 5 changes for country risks and 16 changes for sector risks. Discover which ones in our latest barometer.Read More
Coface acquires North America data analytics boutique Rel8ed
Coface announces today the acquisition of North American data analytics boutique Rel8ed.Read More