The U.K. economy is high-growth, driven by domestic consumers, the service sector, and finance. As such, corporate liquidations there are forecasted to drop 3%, as high-tech services, communications, and electronics see their Sector Risk Ratings improve this year. The Eurozone economies have struggled, though, and the expected 2007 slowdown in global activity will have a big impact, worsening the Sector Risk Ratings of engineering, metals, and most manufacturing industries and pushing up liquidations by 8%.

For the United Kingdom, 2007 will be the sixth year of sustained GDP growth. Real output of the services sector has grown by 17% since the start of 2002 and media, communications, and telecommunications services are expected to see further improvements in credit quality. The electronics sector should see a sharp reduction in risk, while health and public services will also see gains.

Higher interest rates may put pressure on financial sectors, as more consumers struggle to meet repayments. Retail trade will also suffer as disposable income is squeezed. U.K. energy production has been in decline for many years and the prospects for this sector remain poor for 2007. Slower world growth in manufacturing will worsen the outlook for metals, industrial machinery, and chemicals. House builders face a tough year, but higher commercial and public sector activity means that the overall outlook for construction is stable, leaving this Sector Risk Rating unchanged.

The Eurozone has taken much longer to recover. In recent years, GDP growth has only exceeded 2% once, in 2006, as only export demand provided much support to economic activity during 2004 and 2005. Capital goods exports to the Middle East and Asia climbed sharply following the rises in oil and commodity prices in 2004. Looking at 2007, exports will be affected by the stronger euro and slower growth in world trade, which will affect many sectors such as chemicals, metal products, aircraft, and engineering equipment. The Risk Rating for the energy sector will worsen sharply as high prices impact demand. Higher interest rates will worsen the Risk Ratings of the construction and real estate sectors.

Like the United Kingdom, the Eurozone will benefit from the ongoing strength in the global high-tech and computer industries. The consumer sector will benefit from a gradual improvement in employment conditions, but higher taxes and interest rates will restrict spending. On balance, the retail trade, most consumer goods and services, and the finance sectors have no significant changes in their Risk Ratings for 2007.