The performance of the consumer loan asset-backed securities (ABS) sector in Europe, the Middle East and Africa (EMEA) continued to deteriorate in Q2 2009, said Moody's Investors Service in its latest index report for the sector. Moody's net default index reached 1.30 percent which is its highest level so far, while the delinquency index, an indicator of the expected increase in defaults, has surged to 0.99 percent from 0.75 percent in the past year. Moody's outlook for the EMEA consumer loan sector is negative. The rating agency noted that the total outstanding pool balance in the EMEA consumer loan market remained stable in Q2 2009 at EUR 35.4 billion with 47 underlying pools of receivables. “The performance of the EMEA consumer loan sector has been strongly impacted by the adverse effects of the recession on labor markets, which are expected to deepen given the time lag that labour markets have to economic cycles,” said Olimpia da Silva, a Moody's associate analyst and author of the report. “Worsening labour markets increase pressure on consumer loan pools and point to an increase in delinquencies and defaults.” In the report, Moody's also notes that the recession is showing some signs of slowing. In particular, improved industrial output points to a deceleration in the pace of GDP decline. “In the Eurozone economy, industrial production showed its first increase in May, driven by the improvement in the automobile sector in Germany and France,” said Nitesh Shah, a Moody's economist. “However, risks remain significant. For one, the credit markets need to return to normal functioning to guarantee liquidity supply beyond central banks which is essential to firms' ability to invest. In addition, rebuilding inventory could provide an initial spur to production. Furthermore, the capability of recent economic policies to halt unemployment, boost demand and aid recovery needs to prove tangible in the upcoming months,” Shah added. At present, despite some positive signs emerging, the timing and pace of economic revival in Europe remain uncertain.
