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The Global Risk Matrix: Q1 2018

Ten Key Global Risks for Businesses

The Dun & Bradstreet Global Risk Matrix (GRM) ranks the biggest threats to business based on each risk scenario’s potential impact on companies, assigning a score to each risk. The scores from the top ten risks are used to calculate an overall Global Business Impact (GBI) score. 

Risks at Lowest Point Since Index Launched

Our latest GBI score highlights an improving risk outlook for cross-border businesses. This reverses the deteriorating trend seen in the previous quarter, and – importantly – the score is significantly better than the long-term average.
 

Dun & Bradstreet’s GBI score fell from Q4 2017’s 228 (out of a maximum 1,000) to 219 in Q1 2018, indicating an improvement in the global business operating environment. The Q1 score is a record low for our index and is well below both the long-term average of 246.5 and the 2017 average of 228.5 (which itself was the lowest annual average since the matrix was launched).

 

Our top ten risks combine an assessment of: (i) the magnitude of the event’s probable effect on the global business operating environment, on a scale of 1 to 5 (where 1 is the smallest impact and 5 is the largest); and (ii) the likelihood of the event happening.

Two New Risks in the Global Top Ten

As a further indication of the more stable global business operating environment, Dun & Bradstreet’s Q1 2018 Global Risk Matrix has only two new entries: one from the West and Central Europe region and the other from the Middle East and North Africa (MENA) region.

The two new-entry risks are:

  1. The standoff between EU institutions on one side and Hungary and Poland on the other over the deterioration of the rule of law intensifies, threatening the stability of the EU (GBI of 26, out of a maximum 100); and
  2. The ratcheting up of Israel-Iran and Saudi-Iran tensions across various proxy fronts in the Middle East begins to destabilise supply chains and investor confidence and keeps oil prices at USD65-80 per barrel (GBI of 18).

Among our pre-existing risks, the positions of a record seven are unchanged, with one GBI falling (the latter relates to US tax reform failing to boost growth significantly, but adding to deficits, prompting more borrowing by the Treasury and hampering US growth – and therefore the global economic outlook). However, risks remain distributed geographically and diverse in nature around new technology, politics, security and policy-making. This indicates that finance, procurement and supply chain teams across all business sectors need to combat the impacts of an increasingly complex and globalised world.

Geographical Distribution of Risk

Dun & Bradstreet’s Q1 2018 Global Risk Matrix highlights the widespread distribution of risk, with entries emanating from five of our seven regions, the exclusions being – surprisingly – Asia-Pacific and – less surprisingly – Sub-Saharan Africa. Overall, we have two pan-regional risks, two from each of North America, MENA and Latin America, with one from Western and Central Europe and one from Eastern Europe and Central Asia (EECA). The biggest risk – for the third consecutive quarter, and with a GBI of 36 – is our concern that the rapidly growing problem of cyber dependence and connectivity will lead to more frequent and more damaging cyber-security issues, with ramifications for doing business. This risk has been increasingly evident in 2017. Our second pan-regional risk is in equal ninth place, with a GBI of 18. This risk is related to the accelerated integration of bitcoin and other cryptocurrencies into mainstream global financial transactions and markets, posing new regulatory challenges and risks to investors’ portfolios.

Risks from Advanced Countries

In second place in the top ten, with a GBI of 26, is the only risk emanating from West and Central Europe (it is also one of the two new entries). After years of pressure on the EU, a fresh concern has arisen: that the standoff between EU institutions on one side and Hungary and Poland on the other about the deterioration of the rule of law could intensify, threatening the stability of the EU and in turn threatening trade and investment flows within and with the bloc.

In addition, we have two risks related to North America, highlighting the importance of the US economy (and especially policy-makers in Washington) for the continuing global recovery. Both risks are in equal third place with GBIs of 21. The first is the worry that the US Federal Reserve raises interest rates too fast in an attempt to pre-empt inflationary pressures, choking US expansion and heightening volatility in global currency markets and, by extension, growth prospects. The second is our concern that US tax reform fails to boost growth significantly, but adds to deficits, prompting more borrowing by the Treasury and hampering US growth (and therefore the global economic outlook). The likelihood of this happening has fallen from 50% in our previous report to 35% now.

MENA Remains an Area of High Risk

Two new entries in the GRM’s top ten emanate from MENA. In equal fifth place (GBI of 20) is our concern about an escalation in Iranian-Saudi tensions leading to a direct military confrontation (as opposed to the proxy wars currently being fought). Any direct military conflict would likely target oil installations, pushing oil prices up to at least USD120 per barrel (/b). Security concerns are also reflected in the second MENA risk, which is a new entry in equal ninth place with a GBI of 18. This concerns two interrelated axes: the ratcheting up of Israel-Iran and Saudi-Iran tensions across various proxy fronts in the Middle East destabilising supply chains and investor confidence and keeping oil prices in the USD70-80/b range.

Latin America and EECA Provide Three Risks

The first of the two Latin America-derived risks is in equal fifth place, with a GBI of 20. Our concern here is that Mexico’s continued resistance to the US’s NAFTA proposals pushes approval of a new deal (if agreed) back to the tenure of Mexico’s incoming president (a presidential election is due in July 2018), who rejects the deal, leading to the collapse of NAFTA, impacting on global trade flows as supply chains are realigned. The second risk from Latin America is that Venezuela is unable to restructure and/or refinance USD89bn in debt because of US sanctions. This could lead to the triggering of credit-default-swaps and creditors’ seizure of assets, further crippling the oil-based economy and raising concerns over other emerging-nation sovereign debt. This risk is in eighth place with a GBI of 19.

The final risk in this quarter’s Global Risk Matrix is that persistent economic hardship and growing frustration with government policies and corruption in EECA triggers revolutions in the region, leading to the collapse of political regimes. The resultant chaos would impact negatively on supply chains and the global business environment. This risk is in equal fifth place, with a GBI of 20.

Summary: Business Environment Best on Record

The Dun & Bradstreet Global Business Impact score for Q1 2018 shows that risks facing businesses have eased significantly since the high levels of uncertainty caused by the Brexit and Trump votes in 2016. However, although the score is now at a record low, and significantly below the long-term average, this is no time for business decision-makers to relax. The geographical spread and diversity of risks around new technology, politics, security and policy-making combine to ensure that the business environment remains challenging.

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