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Global risikorapport

Country Risk and the Global Outlook
– Mai 2022

Elevated Uncertainty Weighs on Growth Outlook

Commentary:

“China Mainland’s adherence to its zero-tolerance Covid-19 policy continues to disrupt global business activity; the spread of the highly-transmissible omicron variant means key manufacturing and shipping hubs in China Mainland remain closed,” said Dr Arun Singh, Global Chief Economist, Dun & Bradstreet.

Introduction

As a major driver of global growth in the past twenty years, and the only large economy to avoid a pandemic-induced recession in 2020, the anticipated economic slowdown in China Mainland is a key risk to the global recovery in 2022. The economy began decelerating in H2 2021, largely on the back of the government’s zero-Covid-19 policy and managed deleveraging which distressed the property sector - a major driver of growth. While policy support is anticipated to boost growth, this growth will moderate for the next several quarters.

Notably, China Mainland’s firm determination to adhere to its strict Covid-19 strategy means that internal borders and logistic hubs central to global trade will be closed as needed. Large-scale lockdowns of economically-important centres in quick succession have elevated risks to business continuity and led to a reduction in projected GDP growth in 2022 to 4.8%. Asian markets and commodity-dependent economies are especially vulnerable to China Mainland’s slowdown.

Shocks to the fertiliser, feed, and fuel markets are among the key threats to food security in developing and low-income economies and the main contributors to food inflation in advanced countries. The war in Ukraine, sanctions on Russia, export restrictions from major exporters of agricultural commodities, and a halt in shipping from Black Sea ports have constrained food supplies and driven prices to record highs. Moreover, sustained inflation will be the impetus for further monetary tightening this year, risking the economic recovery in emerging markets that will struggle to sustain fiscal support in the face of rising cost of debt from rate hikes.

Combined with pandemic fatigue, the rising cost of essentials is a potent mix for popular frustrations to boil over. The risk is acute for low-income countries struggling to maintain existing food subsidies and/or finance new support measures. Notably, developed countries are not immune to increases in political and insecurity risks as their electorates challenge governments to dampen food inflation. Thus, food protectionism is likely to remain as key agri-producing countries restrict exports of essential food items to tackle domestic inflation and reduce political risks at home.

For businesses, rising prices and ensuing social instability are important for three reasons:

1) Price rises of essentials have the potential to revive collective wage bargaining, and hence labour costs.

2) For countries facing elections, this could result in a change in government or policy stance with regards to taxation and redistribution.

3) Recurrent street action such as protests in urban centres and around important supply routes could cause disruptions to business continuity. These risks will be most pronounced in countries where inflation is accompanied by high levels of unemployment, low levels of fiscal capacity and poor public participation in governance.

REGIONAL SUMMARIES

North America

Policy interest rate hikes of 50bps by the Bank of Canada and the US Federal Reserve, in April and May respectively, reflect the more aggressive paths being taken to cool record consumer prices which are likely to have peaked. Despite the 1.4% contraction of the US economy in Q1, fundamentals remain strong: private consumption grew by 2.7%.

Western & Central Europe

Putin’s weaponisation of the ruble attempts to strike a politically-divided Europe at a moment when energy-driven inflation becomes more engrained and supply chains face news pressures. The ECB’s dilemma is consequently exacerbated, possibly anticipating the shift to a more hawkish policy trajectory in the second half of 2022.

The Nordics

Despite structural strength in the Nordic economies, underpinned by strong government finances and robust demand, the outlook is clouded by spillovers from the Russia-Ukraine war which have driven commodity inflation and stagflationary pressure. Central banks are in a quandary, having to choose between growth and inflation management.

Asia Pacific

The region’s outlook remains ‘deteriorating’. Regional growth projections for 2022 were revised down but remain relatively high. And inflation, while inching higher, remains under control. Unfolding of the debt crisis in Sri Lanka, the political crisis in Pakistan, and largescale lockdowns in China Mainland have cast a shadow on regional investment prospects.

Latin America & Caribbean

Aggressive monetary tightening by the US, which is expected to continue through end-2022 (at least), increases the cost of servicing dollar-denominated debt. Moreover, anticipated further hikes in the US fed funds target rate will add new pressure to regional central banks to ease pressures on their currencies and prevent capital outflows.

Eastern Europe & Central Asia

The outlook remains 'deteriorating rapidly' due to the ongoing Russia-Ukraine situation. Countries in the war - Russia, Ukraine, and Belarus will register severe economic downturns which will take a very long time to repair. Other economies in the region are being hit by high commodity prices and increased energy insecurity.

Middle East & North Africa

We have downgraded our outlook for the MENA region to ‘deteriorating’, as concerns over food security start to outweigh the benefits from higher oil prices. Oil exporters will continue to benefit from higher oil prices. Investment activity will continue to prosper due to an accelerating reform momentum, particularly in Saudi Arabia.

Sub-Saharan Africa

We maintain our outlook of ‘deteriorating’, as inflationary pressures increase. The region has been able to avoid stringent lockdowns due to the outbreak of the omicron variant, but is still likely to trail the rest of the world in recovering from the pandemic. Higher prices for oil as well as non-oil commodities are a positive for commodity exporters.

Dun & Bradstreet Risk Indicator 

Dun & Bradstreet’s Country Risk Indicator provides a comparative, cross-border assessment of the risk of doing business in a country. The risk indicator is divided into seven bands, ranging from DB1 to DB7 – DB1 is lowest risk, DB7 is highest risk. Each band is subdivided into quartiles (a-d), with ‘a’ representing slightly less risk than ‘b’ (and so on). Only the DB7 indicator is not divided into quartiles.

The individual risk indicators denote the following degrees of risk: 


DB1

Lowest Risk

Lowest degree of uncertainty associated with expected returns, such as export payments and foreign debt and equity servicing.


DB2

Low Risk

Low degree of uncertainty associated with expected returns. However, country-wide factors may result in higher volatility of returns at a future date.



DB3

Slight Risk

Enough uncertainty over expected returns to warrant close monitoring of country risk. Customers should actively manage their risk exposures.


DB4

Moderate Risk

Significant uncertainty over expected returns. Risk-averse customers are advised to protect against potential losses.


DB5

High Risk

Considerable uncertainty associated with expected returns. Businesses are advised to limit their exposure and/or select high-return transactions only.


DB6

Very High Risk

Expected returns are subject to large degree of volatility. A very high expected return is required to compensate for the additional risk or the cost of hedging such a risk.


DB7

Highest Risk

Returns are almost impossible to predict with any accuracy. Business infrastructure has, in effect broken down.

 

Ratings and Outlook Changes:

Ratings changes: Changes in rating are made when we judge that there has been a significant alteration in a country’s overall circumstances – this could stem from a one-off event (e.g. a major natural disaster) or from a change in something structural/cyclical (e.g. an important shift in growth prospects). An upgrade indicates a significant change for the better, a downgrade a significant change for the worse. The number of quartiles of change indicates the extent of the improvement/deterioration in circumstances.

Outlook changes: The outlook trend indicates whether we think a country’s next rating change is likely to be a downgrade (‘Deteriorating’ trend) or an upgrade (‘Improving’ trend). A ‘Stable’ outlook trend indicates that we do not currently anticipate a rating change in the near future. 

How Dun & Bradstreet Can Help

Dun & Bradstreet's Country Insight Solutions provide one-stop intelligence for 132 global markets. This solution monitor changes in the business environment of individual countries and forecast country-wide developments which may affect the level of risk or provide opportunities in the short to medium term.

Learn more at dnb.com/country-insight.

 

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