Your guest now in the big live interview on Boursorama is Xavier Durand, CEO of Coface. Good morning, good morning, David, thank you for being with us on Boursorama. I don't know if you listened to what we were talking about just before, but France, as you know, has escaped for now a downgrade of its credit rating by S&P, which grants a reprieve, a small respite to France. It was unexpected, were you surprised? And it gives a bit of breathing room to the government and to France.
I think it's quite logical. That is, they are not there to rate a temporary episode or a political crisis, but rather to look at long-term trends. That's what was mentioned in the show just before. So in fact, the question for them is where we are going in the long term or medium term, more than the political episodes of the moment.
But do you nonetheless fear the economic consequences of a possible fall of the Barnier government, which is not certain either? Possibly this Wednesday, Thursday, if Michel Barnier uses 49.3, which is not sure either?
I think what is happening is that each time there is political uncertainty, it creates fear and restraint. We were talking about French savings; the French save a lot, 18% of disposable income. So to make the economy work, we also need consumption and investment. So that is rather the consequence of a significant political crisis: it creates a slowdown that will ultimately have financial impacts too, since it will slow down the economy and further worsen the deficit situation.
They say AA minus is still a very good rating, the equivalent of 16 out of 20. Do we really deserve it? Does France deserve this rating with 6% public deficit?
I think honestly everything has been said in the previous interview. I think France is a diversified economy, a solid country that has the ability to repay. The question is rather how we organize to do it and how we put our economy back into a situation of investment and development, looking forward rather than backward.
Yeah, what is certain is that you have to explain that. As long as France remains in the AA category, the markets don't panic and investors can continue to buy French debt. They say if we go below, especially to single A, the situation changes and it closes many investors who can no longer buy French debt. Is that true?
That's true, for rating reasons, portfolio reasons, etc. But clearly we are not there. So clearly we are in a complicated moment politically, in a moment of gradual economic slowdown, and especially in a moment where international tensions mean there is a lot of uncertainty and therefore many companies today understand this level of stress and concern. And that's precisely our job to help them get through all these difficulties.
We will talk about that, but when you are the CEO of Coface, I wonder: isn't it incredible that Spain and Portugal are rated less well than France and yet they borrow cheaper? What does that reflect?
Simply put, for two to three years we have seen Southern European countries regain dynamism, paradoxically more than the traditionally strong economies of France and Germany. So there is a resurgence of activity and attractiveness in Southern Europe. I think that is what is playing out and being demonstrated to our detriment. Clearly we have issues we need to face. But when I look, I think the world is full of rather complex issues right now, and once again, the global economy continues to grow at a slightly slower pace, but there is growth in the world.
We'll talk about that. Just to close this sequence: despite the difficulties and current political turbulence, for you France remains an asset that is low risk from a credit perspective.
So we see that for three and a half years now we have seen a rise in corporate defaults. That's really Coface's business: protecting companies against credit risk. We have paid out, so what matters enormously is the financial health and payments between companies. We see for three and a half years a gradual rise, not only in France but in all developed countries, following COVID which generated very strong public support policies that worked well. But we see unpaid claims rising. Today, we are at about 15% more defaults worldwide than in 2019. In France, we are rather at 30%, approaching 30%. So clearly there is growing stress. We know that public authorities no longer have the means to support as before. We see corporate cash flows under pressure. And our goal is... we have five million companies on which we have risk in 200 countries, so we have a very good vision of what is happening in the world. And clearly our job is to help companies manage this increase in risk. And French companies are the ones most in difficulty in terms of cash flow tension and potential default? Actually, not the most in difficulty; I think we find difficulties in all countries of the world today. As I said, we are well above where we were in 2019 in most developed economies. And it continues to grow.
Is that somewhat normal because it's a catch-up?
Yes, it's a catch-up. We supported companies that were in less than perfect financial situations. We helped them get through a crisis, and now we find the truth of prices. So for us, this work is done at a microscopic level. It's important to see that we don't take risks with a broad brush; it's real fine-tuning. And it relies on data, on individual data relating to a given company in its segment, in its market.
Companies buy insurance policies to protect against the risk of default, and at the same time you also handle recovery. That's interesting because more defaults also increase your business?
Clearly, we are in the risk business. We exist because there is risk. Our business covers the entire chain: first we have a huge infrastructure. I think Coface has one of the finest infrastructures in the world for risk management across all countries. Underlying that is a data infrastructure, an individual risk management infrastructure that is without comparison. So we provide both data on companies—a database of 220 million companies that we keep updated and on which we work and invest heavily—we do insurance, and we also do recovery. So we offer a full range of services to help you manage your credit risk.
Recovery revenues, I see they are increasing a lot? It's small but with strong growth. I saw 25%? Something like that?
Yes, absolutely. We have double-digit growth. And on the macroeconomic environment, beyond France, Europe, the US: if I had to make a spontaneous summary of what is happening in the world today—I was in the US three weeks ago with business leaders—I would say that after the moment of surprise, they are in business and they are rather positive. Americans are in the 'OK, where are the opportunities?' mode. I was in Asia last week; there is a bit more concern because we are clearly... it's different by region. We know China is slowing down, but Southeast Asia can develop. And the most challenged region today is clearly Europe. We are waiting for a response, and at the same time we are waiting to see what happens with the Americans, because we have seen this Trump presidency widely hailed by the stock markets, this superiority in terms of growth and stock market profitability is a tangible reality.
And if you had to characterize the global economic environment, what would you say?
