Global risikorapport for juni

World Oil Market to Tighten in Coming Month

“Growth forecasts for 2022 are again adjusted down on the back of lower investment spending, weakening consumer sentiment, ongoing problems in supply chains, less supportive fiscal policies and aggressive tightening by central banks to combat stubborn inflation,” said Dr Arun Singh, Global Chief Economist, Dun & Bradstreet.

Introduction

As Europe places additional sanctions on Russian oil, the global market will tighten further in the coming months. An estimated output of 2m barrels per day of Russian oil will be without buyers, as constraints on shipping and infrastructure will result in Russia struggling to find alternative customers. OPEC is unlikely to fill the gap: the group has recently been having difficulty raising output to meet agreed higher quotas. In addition, US shale producers, though likely to continue their production ramp-up, will do so only gradually. Inventories are subsequently low, with very little ability to replenish them over the coming months. Demand is robust, as China Mainland eases restrictions on travel with a fall in Covid-19 cases and high oil prices have failed to dent demand in North America, where the busy summer travel season has commenced.

Meanwhile, Russian gas flows are under threat, as it cut off supplies to some European nations. Supply to Finland was terminated in late-May after that nation failed to comply with Russia’s demand to pay for gas in rubles. Though largely symbolic given that around 5% of energy consumed in Finland comes from natural gas, the move followed Poland and Bulgaria being cut off in the previous month. Capping the upside in the near-term, some European importers moved ahead with plans to buy Russian gas in rubles, as EU guidelines provide some wriggle room to do so without breaching financial sanctions against Russia.

Coal prices also continue to face upward pressure as demand remains strong from India and China Mainland. India is turning to imported coal to ease domestic supply tightness, while imports are rising in Europe. China Mainland has waived coal import duties, increasing competition for coal shipments, though rising hydro reservoir levels could see coal demand easing somewhat.

The flood of liquidity from debt markets, massive fiscal packages, loose monetary policy, and creditor forbearance suppressed bankruptcy rates in 2021. However, the current combination of less supportive fiscal and monetary policies with tighter standards and terms for bank loans to businesses markedly raises the probability of a spike in businesses failures in the second half of 2022. While bankruptcies may not rise sharply across many economies, there will be more pockets of distress surfacing, in the next six months, as the deceleration of growth weaken business and consumer sentiment and expectations.

Dun & Bradstreet Country Risk Analysis
Country	May 2022	June 2022	Change
Country Risk Rating Upgrades (risk level has improved)
Iraq	DB7	DB6d	1 quartile
Country Risk Rating Downgrades (risk level has deteriorated)
Botswana	DB3c	DB4a	2 quartile
Qatar	DB2d	DB3b	2 quartiles
Outlook Upgrades (from/to)
Cyprus	Deteriorating	Stable
Czech Republic	Deteriorating	Stable
Hungary	Deteriorating	Stable
Luxembourg	Deteriorating	Stable
Mexico	Deteriorating	Stable
Romania	Deteriorating	Stable
Outlook Downgrades (from/to)
Croatia	Improving	Deteriorating

REGIONAL SUMMARIES

North America

While contraction of 1.5% in Q1 was a sharp slowdown in the US economy from the previous quarter, a rise in consumer purchases - driven by an increase in spending on services - and higher business spending on equipment suggest a return to growth in Q2. Elevated global prices are a boon for Canada's energy and wheat industries.

Western & Central Europe

With inflation in May exceeding expectations once again in Europe, there is higher pressure on the ECB to tighten monetary policy and an increased likelihood of an imminent interest rate hike. The Bank of England hikes for the fourth time in a row in a country where the cost of living has increased substantially in the last months.

The Nordics

Despite structurally strong economies with solid government finances and still robust demand, the near-term outlook is clouded by the probability of spillover effects from the Russia-Ukraine crisis which have driven commodity inflation. Growing stagflationary pressure put central banks in a quandary of choosing between growth and inflation management.

Asia Pacific

The outlook remains on ‘deteriorating’. Across the region, growth projections for 2022 have been revised down but remain relatively high. Inflation, while inching higher, remains under control. The simultaneous unfolding of the debt crisis in Sri Lanka, the political crisis in Pakistan, and largescale lockdowns in China Mainland cloud regional investment prospects.

Latin America & Caribbean

Aggressive monetary tightening by the US in June and July will further increase the cost of servicing dollar-denominated debt. Central banks are also under pressure to hike policy rates to offset downward pressures on their currencies and limit capital outflows. The global squeeze on grain and energy supplies boosts regional exporters’ receipts.

Eastern Europe & Central Asia

The outlook remains at 'rapidly deteriorating' due to very high economic uncertainty with severe business disruptions due to the war in Ukraine. Russia, Ukraine, and Belarus are set to witness severe economic downturns. Other economies in the region struggle with commodity prices and elevated geo-political instability risk.

Middle East & North Africa

Serious concerns over food security in smaller countries in the Levant and North Africa persist. Oil exporters continue to benefit from higher prices, further diversifying the gap between resource-rich and importing countries. Tourist arrivals are a positive, with the loss in Russian tourists partially offset by US and Europe arrivals.

Sub-Saharan Africa

Inflationary pressures in Sub-Saharan Africa are increasing, especially for fuel and food items. Higher prices for oil as well as non-oil commodities are a positive for commodity exporters. But there is a significant threat to wheat exports from Russia and Ukraine, which account for nearly 29% of the global supply.

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 DB 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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