The Global Business Risk Report Q3 2019

Ten Key Global Risks for Businesses

The Dun & Bradstreet Global Business Risk Report (GBRR) 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.

Our latest GBI score highlights a slight improvement in outlook for cross-border businesses, reversing the trend that had taken the score to its highest-ever level in the previous quarter.

Risks still elevated

Dun & Bradstreet’s GBI score has improved this quarter after worsening successively in the five previous quarters, having reached a record high of 308 in Q2 2019. However, the Q3 score of 293, although better, is still at an elevated level, indicating that the global business operating environment remains fraught. The Q3 score is the second-highest since the measure was launched in 2013, and is well above the long-term average (254.1). Despite the improvement this quarter, the current score shows that there has been a significant worsening in business risk since Q1 2018 – when a record low of 219 was recorded.

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.

Three new risks in the global top ten

Highlighting the ever-evolving global environment, there are three new entries in our Q3 2019 GBRR’s top ten: two from Western and Central Europe, and one from Asia-Pacific.

The three new-entry risks are:

  1. Angela Merkel's term as chancellor is cut short as her coalition government collapses over poor election results, creating uncertainty in Germany and the wider EU (GBI of 24, out of a maximum 100);
  2. China fails to defend the CNY7:USD level, prompting a sharper-than-expected devaluation that shocks financial markets and triggers several emerging market crises (GBI of 24); and
  3. With regional growth slowing and standard monetary policy tools having been exhausted, the euro zone falls into deflation territory, curtailing demand for goods and services (GBI of 21).

Among the pre-existing risks in our top ten, the GBI scores of the top four have worsened from the previous report, while two GBI scores have improved and one has remained the same. Overall, the importance of the present uncertainty in Western and Central Europe to the global business environment is highlighted by a record five risks emanating from that region. The importance of slowing growth in China is also emphasised in the two risks related to Asia-Pacific. North America is the source for one risk, while the other two risks are pan-regional. The types of risk remain diverse, and are associated with policy-making, politics, and economic developments. This reinforces the fact that finance, procurement and supply-chain teams across all business sectors need to combat the impacts of an increasingly complex and globalized world.

Political factors create uncertainty

Our latest GBRR highlights how political factors are a leading cause of uncertainty for global business. The premier risk this quarter – with a GBI of 42, up from 35 previously – is our worry that politicians will fail, or perhaps be unwilling, to stop a US-China trade war. This could then spiral, with negative secondary effects offsetting new business opportunities and undermining global trade volumes.

The second political concern, with a GBI of 30 (up from 27), and in fourth place overall, is the Brexit situation: if the UK leaves the EU in a disorderly way, this is liable to cause significant regional and global supply chain disruptions, as well as curtailing reciprocal cross-border business investment between the EU and the UK.

The third political factor is in sixth place, with a GBI of 25 (the same as in the previous report). We are concerned that current US-Iranian tensions could lead to actual military conflict between the countries, with the closure of the Persian Gulf to oil tankers prompting oil prices to jump sharply to over USD150 per barrel, with negative impacts for businesses and cross-border trade.

The final political risk – a new entry in the top ten – is that Angela Merkel’s term as chancellor is cut short as her coalition government collapses amid poor election results, creating uncertainty in Germany and the wider EU. This risk is in equal seventh position, and has a GBI of 24.

Policy-making is also important

Relatedly, the Q3 2019 GBRR shows that policy-makers, particularly in the EU, have a number of important decisions to get right if the global business environment is to improve. The highest policy-making risk is in third place overall, with a GBI of 36 (up from 30 previously). Our concern is that policy-making at the EU level becomes more complicated as anti-EU parties gain control in states such as Italy and Poland, undermining the business environment.

In fifth place in our top ten, with a GBI of 28 (down from 30 previously), is another risk related to the EU. In this case, labour scarcity and anti-immigration policies could lead to a drop in long-term EU growth potential, undermining global business opportunities. The final EU policy-making risk is a new entry, in tenth place, with a GBI of 21. The risk here is that the euro zone falls into deflation territory as regional growth slows (at a time when standard monetary policy tools have been exhausted), curtailing demand for goods and services.

The last policy-making risk is a new entry in equal seventh place, with a GBI of 24, and emanates from the Asia-Pacific region. We are concerned that China could fail to defend the CNY7:USD exchange rate level, prompting a sharper-than-expected devaluation that shocks financial markets and triggers several emerging market crises.

Economic concerns

Two economic risks take up the remaining places in our top ten. In second place overall, with a GBI of 39 (up from 30), is the concern that the current expansion in the US has reached its peak, leading to a turning point in the credit cycle and eventually the US business cycle, in turn impacting global prospects.

The second economic impact is that increased US tariffs will hit profits and tax revenues in China as the trade war stalemates; and that contagion from bad debts then triggers a rapid slowdown, overwhelming policy steps to stabilise the economy, with a consequent negative impact on global growth. This risk is in equal seventh place and has a GBI of 24, down from 50 previously.

Summary: Business environment risk eases slightly

Dun & Bradstreet’s Global Business Impact score for Q3 2019 shows that the risks confronting businesses remain elevated by historical standards, despite an improvement compared with the previous quarter. The Q3 2019 score highlights that business decision-makers still need to monitor the global business environment continually and carefully as the global economy slows once again (despite the solid – if unspectacular – recovery from the 2008-09 recession). The geographical spread and diversity of risks related to policy-making, politics, and economic developments make the business environment increasingly challenging.

Top ten risks

Ranking Region Risk Likelihood of Event (%) Global Impact (1-5) Global Business Impact Score (1-100)
1 Pan-regional Negotiations fail to stop a US-China trade war, which spirals, with negative secondary effects offsetting new opportunities and cooling global trade growth. 70 3 42
2 North America The current US expansion has reached its peak rate, leading to a turn in the credit cycle and eventually the US business cycle, in turn impacting global prospects. 65 3 39
3 Western and Central Europe Policy-making at the EU level becomes more complicated as anti-EU parties gain control in states such as Italy and Poland, complicating the business outlook. 60 3 36
4 Western and Central Europe The UK leaves the EU in a disorderly way, causing global supply chain disruptions. 50 3 30
5 Western and Central Europe Labour scarcity and anti-immigration policies lead to a drop in long-term EU growth potential, undermining global business opportunities. 70 2 28
6 Pan-regional US-Iranian tensions lead to actual military conflict between the countries, with the closure of the Persian Gulf to oil tankers leading to oil prices topping USD150/b. 25 5 25
=7 Western and Central Europe Angela Merkel's term as chancellor is cut short as her coalition government collapses amid poor election results, creating uncertainty in Germany and the wider EU. 40 3 24
=7 Asia-Pacific In China, US tariffs hit profits and tax revenues as the trade war stalemates. Contagion from bad debts then triggers a rapid slowdown, overwhelming policy steps to stabilise the economy, with a consequent negative impact on global growth. 40 3 24
=7 Asia-Pacific China fails to defend the CNY7:USD level, prompting a sharper-than-expected devaluation that shocks financial markets and triggers several emerging market crises. 40 3 24
10 Western and Central Europe As regional growth slows and standard monetary policy tools are exhausted, the euro zone falls into deflation territory, curtailing demand for goods and services. 35 3 21