1) Brazil's recession continues to deepen while inflation soars, worsening public finances. Euler Hermes downgraded Brazil's short-term risk rating to Sensitive (3) from Medium (2), while maintaining its medium-term B rating. 2) Euler Hermes revised down China's growth forecasts and upgraded its short-term risk rating to Medium (2) from Low (1), citing increased financing and insolvency risks, while maintaining its medium-term B rating. 3) Malaysia's economic growth is weakening due to lower commodity prices and global demand. Euler Hermes downgraded Malaysia's short-term risk rating to Medium (2) from Low (1) and its medium-

1. Source: Euler Hermes, as of September 18, 2015
R U S S I AR U S S I A
Medium term
risk:
the scale comprises 6 levels:
AA represents the lowest risk,
D the highest.
Short term
risk:
the scale comprises 4 levels:
1 represents the lowest risk,
4 the highest.
3countries with
deteriorated
ratings
l
B1 B2
3 changes in country risk ratings
3rd
Quarter 2015
B2 B3 A1 BB2
Brazil
The recession continues to deepen (GDP contracted by -1.9% q/q in Q2,
dragged down mainly by falling investment and private consumption) while
inflation continues to soar. The current account deficit will remain large due
to low export revenues (lack of competitiveness, low commodity prices,
uncertain outlook in China, gloomy outlook in neighbouring countries).
Financing of the external deficit could prove challenging (low revenues from
exports, Fed tapering, capital flight) and downward pressures on the BRL will
remain strong. Alongside, public finances are deteriorating with a primary
deficit expected for 2016 and public debt increasing rapidly. Consequently,
we have changed the Short-Term Rating to Sensitive (3) from Medium (2).
The Medium-Term Rating continues to be B.
China
Systemic risk is contained at that stage as the government has a strong
financial position. However, cyclical risks have increased. We revised down
our growth forecast in the course of this year to +6.8% in 2015 (from +7.8%)
and +6.5% in 2016 (from +6.8), with a possible deviation of +/-0.2pps each
year. This revision reflects lower growth in exports and investment, a less
favourable financing mix (lower cost of credit but high corporate debt) and
prevailing deflationary pressures in the manufacturing sector. Financing risk
has increased in line with higher financial volatility and the still high level of
corporate debt. The insolvency forecast was revised up significantly to an
increase by +25% in 2015 (from +8% previously). Consequently, we have
changed the Short-Term Rating to Medium (2) from Low (1). The
Medium-Term Rating continues to be B.
Malaysia
Economic growth is weakening, with GDP growth set to decelerate to +4.8%
this year (from +6% in 2014). The export performance has been affected by
lower commodity prices and weaker global demand. Domestic buffers have
weakened. Consumer confidence is on a downward trend as a result of
various political scandals, lower economic prospects and lower “global
purchasing power” due to the declining ringgit. The authorities have little
scope to support growth: domestic vulnerabi-lity persists including high
household debt and high public debt compared to regional peers; and
external risk has increased as reflected by the large fall in FX reserves and the
sharp currency depreciation. Going forward, China’s slowdown and the Fed
rate hike add further worries. Consequently, we have changed the Short-
Term Rating to Medium (2) from Low (1) and the Medium-Term Rating
to BB from A.
Economic Research
DISCLAIMER
These assessments are, as always, subject to the disclaimer provided below.
This material is published by Euler Hermes SA, a Company of Allianz, for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this
information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited.
Whilst this information is believed to be reliable, it has not been independently verified by Euler Hermes and Euler Hermes makes no representation or warranty (express or implied) of any kind, as regards the accuracy or com-
pleteness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or
estimates are solely those of the Euler Hermes Economics Department, as of this date and are subject to change without notice. Euler Hermes SA is authorised and regulated by the Financial Markets Authority of France.
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Country
Risk
Outlook
Q3 2015 — UPDATE
MACROECONOMIC RESEARCH AND COUNTRY RISK TEAM