If proof is needed that the global economy is returning to health then it arrives with news that speculative corporate default rates are set to fall by 50% in 2003, with further declines expected in 2004, according to the risk solutions team at S&P’s.
With the corporate debt default rate standing at 4.5% for 2003 records are being set - not since 1998 has the global default rate fallen below the long-term average of 5.2%.
Emerging market speculative grade default rates have made the most dramatic falls, from 14.8% in 2002 to just 2.4% for 2003. Europe’s rate is expected to be nearer 3% for 2003, while the speculative grade default rate in the US lags behind at 5.2%, though comparing favourably with 7.4% in 2002 and 9.8% in 2001.
“After the extraordinary years of 2001 and 2002, when 9% and 9.3% respectively, of speculatively rated companies defaulted globally, only 4.5% of such companies are expected to have defaulted by the end of 2003,” notes Brooks Brady, an associate director of default research at S&P’s. “This marks the first year since 1998 that global default rates have been below the long-term average of 5.2%.”