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D&B Country RiskLine Report

 

UNITED STATES OF AMERICA

Region: THE AMERICAS

 August 2007

D&B COUNTRY RISK INDICATOR

DB1c

This "DB" Rating Indicates:

Lowest risk

Lowest degree of uncertainty associated with expected returns, such as export payments, and foreign debt and equity servicing.

Trend: 

Stable - The country's overall risk outlook has not changed appreciably, even though some minor changes to its political, commercial, macroeconomic, and/or external risk environment may have occurred.

 

The 'DB' risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country. Essentially, the indicator seeks to encapsulate the risk that country-wide factors pose to the predictability of export payments and investment returns over a time horizon of two years. The 'DB' risk indicator comprises a composite index of four over-arching country risk categories:

Political risk - internal and external security situation, policy competency and consistency, and other such factors that determine whether a country fosters an enabling business environment;

Commercial risk - the sanctity of contract, judicial competence, regulatory transparency, degree of systemic corruption, and other such factors that determine whether the business environment facilitates the conduct of commercial transactions;

Macroeconomic risk - the inflation rate, government balance, money supply growth and all such macroeconomic factors that determine whether a country is able to deliver sustainable economic growth and a commensurate expansion in business opportunities;

External risk - the current account balance, capital flows, foreign exchange reserves, size of external debt and all such factors that determine whether a country can generate enough foreign exchange to meet its trade and foreign investment liabilities.

The DB risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is subdivided into quartiles (a-d), with an a designation representing slightly less risk than a b designation and so on. Only the DB7 indicator is not divided into quartiles.

 

USUAL TERMS

Minimum Terms:

OA

The minimum advisable form of documentation or trading method under which D&B advise customers to pursue any form of export trade with stated country.

 

Recommended Terms:

OA

D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms.

 

Usual Terms:

30-60 days

Normal period of credit associated with transactions with companies in the stated country.

 

According to the Administrative Office of the US Courts, the total number of bankruptcy filings in the federal courts in 2006 was 617,660, a 70.2% decline from 2,078,415 in 2005. However, the number of bankruptcies filed for in Q4 2006 was the highest of any quarter in the calendar year. Moreover, on a quarter-on-quarter basis, bankruptcy filings rose in each of the last three quarters of 2006.

 

TRANSFER SITUATION

Local Delays:

0-1 month

The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports.

 

FX/Bank Delays:

0-1 month

The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on foreign exchange controls, foreign exchange availability and the efficiency of the local banking system.

 

Import Cover:

1 week

The amount of foreign exchange a country has in relation to the average monthly value of imported goods and services. Only liquid foreign exchange reserves from which a country can service its import requirements are included in this calculation.

 

The accumulation of massive external liabilities suggests that if foreign investors stop purchasing US securities in the same volumes, a rapid depreciation of the US dollar against other freely floating currencies could occur. However, the attraction of higher risk-adjusted returns and US dollar-denominated assets as safe haven investments makes this unlikely in the short term.

 

ECONOMIC INDICATORS*

2004 2005 2006e 2007f 2008f
Real GDP growth, % 3.9 3.2 3.3 2.1 2.4
Inflation, annual ave % 2.7 3.4 3.2 2.4 2.0
Govt balance, % GDP -3.5 -2.6 -1.9 -1.6 -2.3
Unemployment, % 5.6 5.1 4.7 4.8 5.1
C/A balance, % GDP -5.7 -6.4 -6.5 -6.4 -6.3
**The long-term interest rate chart tracks yields on US government bonds (composite over ten years).

 

Local Currency 

USD: JPY [100]

London spot rate (Friday)

Feb 07

0.8255

  0.8217
  0.8382
  0.8259
Mar 07

0.8545

  0.8466
  0.8564
  0.8487
Apr 07

0.8469

  0.8436
  0.8383
  0.8413
  0.8371
May 07

0.8318

  0.8326
  0.8250
  0.8221
Jun 07

0.8194

  0.8222
  0.8096
  0.8059
Jul 07

0.8097

  0.8117
  0.8181

 

Local Currency

 

Exchange Rates

(London, 16 Jul 07)

 

EUR

GBP

JPY*

1.3775

2.0327

0.8181

 

Long-Term Interest Rate*
(annual rate, %)

 

Long-Term Interest Rate*

(annual rate, %)

Q3 05

Q4 05

Q1 06

Q2 06

Q3 06

Q4 06

Q1 07

4.2

4.5

4.7

5.1

4.7

4.6

4.6

 

EXPORT CREDIT AGENCIES

Atradius

Full cover available

ECGD

Full cover available

Euler Hermes UK

Full ST cover available

 

RISK FACTOR

Federal Reserve Chairman Ben Bernanke delivered his semi-annual address to the House Financial Services Committee on 18-19 July. Although not containing any major differences from earlier pronouncements, the testimony nonetheless provided some valuable insights on the Federal Reserve's current assessment of the US economy and future risks. In particular, Bernanke announced that the Federal Reserve was cutting its 2007 real GDP growth forecast to a range of 2.25-2.50% from 2.50-3.0% in February. The 2008 real GDP forecast was also reduced to a range of 2.50-2.75% from 2.75-3.0% in its February forecast. These amendments bring the Fed's forecasts more into line with D&B's own projections. However, in keeping with its somewhat more optimistic outlook, the Fed's lower forecast boundaries remain slightly above D&B's own GDP growth projections for both 2007 and 2008.

In his testimony, Bernanke highlighted some of the key near-term risks to the US economy. In particular, he noted that the ongoing US housing sector correction could prove to be worse than expected, thus having a negative effect on consumer spending and overall economic growth. This is in line with D&B's own assessment: we have been concerned for some time that the hitherto impressive resilience of US private consumption growth may not persist in the future. More specifically, we have stated that a more severe and/or longer housing sector slump may eventually begin to affect private consumption. One possible explanation for the past resilience of private consumption growth could be that increased inventories of newly constructed homes have so far not resulted in significantly lower prices. The risk in this regard is that price cuts aimed at clearing the accumulated backlog may spill over into lower prices in the broader housing market. The impact on private consumption in such an instance would obviously be linked to the magnitude of price declines, but it is conceivable that even fairly moderate declines could hurt the confidence of homeowners.

In his testimony, Bernanke also highlighted the risk that 'energy and commodity prices could continue to rise sharply' and feed into higher prices for goods and services. Moreover, he reiterated that upside inflationary risks remain the Federal Reserve's 'primary policy concern'. Interestingly, despite lowering its growth forecasts, the Fed did not reduce its earlier forecasts for the core personal CPI (its preferred inflation metric). This suggests that the Fed still has some doubts about whether the recent drop in inflation can be sustained. The recent sharp run up in international oil prices has probably added to its caution in this regard.


GLOSSARY

KEY:

C L/C

Confirmed Letter of Credit

CWP

Claims Waiting Period

FX

Foreign Exchange

L/C

Letter of Credit

LT

Long-term

MT

Medium-term

OA

Open Account

SD

Sight Draft

ST

Short-term

 

 

DEFINITIONS:

C/A (current account) balance, % GDP:

A measure of a country's net trade, service, and other non-capital flows.

DSR (debt service ratio), %:

The total of a country's debt interest and principal payments in relation to annual export revenues.

Govt balance, % GDP:

The public sector balance expressed as a proportion of total domestic economic output.

Real GDP growth, %:

The growth in the total goods and services produced within a country, taking account of inflation.

Inflation, %:

The increase in consumer prices reported as an end-year or annual average figure.

Investment, % GDP:

The proportion of total output directed toward investment.

Manufactures, % GDP:

A measure of the importance of industry within an economy.

Non-oil sector, % GDP:

The degree of dependency of an economy on oil.

Oil, US$ p/b:

Oil price per barrel.

Oil output, '000 bpd

Average daily output of oil.

Public debt, % GDP:

The total public sector debt in relation to the size of the domestic economy.

Trade balance, % GDP:

A measure of a country's net import and export flows.

Unemployment, %:

The percentage of the registered labour force that is unemployed.

 

While the editors endeavour to ensure the accuracy of all information and data contained in this report, neither they nor Dun & Bradstreet Limited accept responsibility for any loss or damage (whether director indirect) whatsoever to the Customer or any third party resulting or arising therefrom. Copyright. All rights reserved.

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