Spain Next to Feel Housing Decline: Coface

Problems in the housing market may soon spread to Spain, following the downturns seen this year in the U.S. and United Kingdom, according to Coface, a Paris-based provider of credit insurance, company information and ratings, receivables management and factoring.

Coface publishes a country rating that reflects the average level of short-term non-payment risk associated with companies in the country and the extent to which a country’s economic, financial, and political outlook influences financial commitments of local companies.

Coface yesterday announced that Spain is the third large industrialized country to be placed on its negative watch list this year. This action is due to the risk of a spreading property crisis, similar to that of the U.S. and U.K., both of which were placed on the negative watch list by Coface this year (April and July, respectively.)

The household debt rate is reaching proportions comparable to that of the U.K. and U.S. (130%, 163% and 138% of disposable income, respectively), according to Coface. Spanish growth should fall to 2.9% in 2008, compared to 3.8% this year, notably due to the fall in housing investment.

“Spain is sharing the dangerous cocktail of real estate bubble and household over-indebtedness with the U.S. and U.K.,” Yves Zlotowski, Coface chief economist, said in a statement.   

Coface said it also put Romania on its negative watch list due to a drop in the value of its currency and increases in private sector debt. 

The U.S. has been on the negative watch list since April 10, 2007.  At that time, Coface noted the signs of American economic slowdown, property market difficulties, as well as the credit squeeze and their possible impact on the financial soundness of businesses. The U.K. has been on Coface’s negative watch list, since July 10, 2007.

Coface reported the American slowdown could extend into 2008. If global corporate payment behavior remains good, some companies, notably those financed by leveraged buyouts, could be weakened, all the more so if they are faced with a “credit crunch”. A deceleration is also looming over the U.K. Retail trade and other closely related sectors are the most vulnerable, Coface projects.

Coface bases its country ratings on local financial and political indicators and on its databases covering 44 million companies worldwide.