Scenario of the stress test conducted by S&P, suggests the sharp decline of investment in the Chinese economy, with the result that the average growth rate of China’s GDP in 2017-2020 will be reduced to 3.4% per year, which is almost half of China’s GDP growth in 2015 (6.9 percent). Following the slowdown of China’s economy under the stress test scenario in the S&P average price of Brent crude oil in 2017-2020 will fall to $30 per barrel, and in 2017 the cost of a barrel will oscillate in the neighborhood of $20. With lower prices face and other commodity markets, is spoken in the message of rating Agency. The slowdown will respond twice as well as a 25 percent devaluation of the yuan against major world currencies.
In such a scenario will suffer the most sovereign ratings of countries-exporters, primarily Russia, Australia and Brazil: they will be reduced by one position (currently they are rated “junk” BB+ c negative Outlook, and AAA the highest “junk” BB with a negative Outlook, respectively).
As explained by S&P, stress test results confirmed that sector and issuers are the most dependent from China and raw materials, will be most sensitive to the stress scenario. This is particularly true for issuers with a low rating.
The result of the stress test showed that depending on the region and industry decline in the credit rating waiting from 16 to 50% of issuers. The highest risk for corporate issuers in the Asia-Pacific region (54% of them will face a downgrade), practically will not affect China’s slowdown on the positions of financial and insurance corporations in North America.
S&P notes that in periods of economic decline, such as 2002 and 2009, with the downgrade encountered about 20% of the financial, industrial and insurance companies.
When implementing this scenario, by 2020 all of the major economies will show much less the cumulative growth of their real GDP compared to the baseline scenario of S&P. For China, the figure will be 9.6% lower, followed by Chile (minus 8.4 percent), Taiwan (minus 7.5%), South Korea (minus 6.8 percent), Malaysia (minus 6.6%) and Hong Kong (minus 5.7 percent). Real GDP in Russia and Brazil will lag behind projected in the baseline scenario indicators of 5.5%.
In its statement, S&P stressed that the proposed stress test scenario is not part of the basic and even the negative scenarios that are considered by the rating Agency in respect of China. At the same time, S&P indicates that the pace of China’s economic growth and oil prices remain key risks to creditworthiness.”
Last year’s GDP growth at 6.9% was the worst for China over the past 25 years. In March, S&P affirmed the long-term sovereign credit rating of China at AA-, but lowered its Outlook from “stable” to “negative”.