Sovereign creditworthiness looks a lot like the global economy these days: modestly weaker overall but with some pockets of strength.
The average credit rating of 179 countries declines by 0.6 point, to 43.9 on a scale of zero to 100, according to Institutional Investor’s semiannual Country Credit survey. The retreat reflects widespread drops in most regions of the world, only partly offset by gains in Western Europe.
Ratings rise for 16 of Western Europe’s 19 countries, with the biggest gains coming in peripheral countries such as Greece, Portugal and Ireland. Analysts say the gains reflect relief that the euro crisis has eased dramatically but as yet there is little confidence that European leaders have fully resolved it.
Elsewhere, the U.S. leads a broad-based decline in creditworthiness. The country’s rating falls 1.1 points, to 88.8, its lowest level in the 33-year history of the survey. The U.S.’s ranking drops two notches, from tenth to 12th. Analysts attribute the drop to continuing worries about political gridlock in Washington rather than the economy, which continues to grow at a moderate pace.
In Asia, survey respondents see positive signs in China, which posts a 1.1-point rise. The gain reflects growing confidence that the country has achieved an economic soft landing. Japan also posts a significant gain, rising 2.2 points; its ranking moves up two places, to 18th. The reflationary policies that Shinzo Abe has adopted since taking over as prime minister in late December elicit optimism among analysts.
Much of the developing world suffers a ratings decline, reflecting the lack of a strong economic locomotive in either the U.S. or China.
How We Compiled the Ratings Institutional Investor’s Country Credit ratings are based on information provided by senior economists and sovereign-risk analysts at leading global banks and money management and securities firms. The respondents have graded each country on a scale of zero to 100, with 100 representing the least likelihood of default. We weighted participants’ responses according to their institutions’ global exposure. Names of respondents are kept strictly confidential.
The March 2013 Country Credit survey was conducted by Researcher Valentina McKenzie and other II staff under the guidance of Senior Editor Jane B. Kenney.