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By Dr. Arun Singh,
Global Chief Economist,
Dun & Bradstreet

13thSeptember 2021

Momentum moderates as delta variant spreads

 

Commentary:

“The global economy is growing at its fastest post-recession pace in 80 years, as global vaccination progresses; however, the delta variant threatens the recovery’s pace while overall logistics and goods supply issues persist. Global trade and supply chains are vulnerable to closures of ports or terminals because of China’s ‘zero tolerance’ Covid-19 policy. India’ short-term economic outlook is improving as the upcoming festive season and the pace of vaccination will provide the much-needed fillip to demand. Growth will be also driven by bouyant exports which are riding on the recovery in major markets. The big challenge to growth as recovery resumes is the potential third wave, high inflationary pressures and a stressed labour market..” said Dr Arun Singh, Global Chief Economist, Dun & Bradstreet.

Introduction

The global economy will grow in 2021, its fastest post-recession pace in 80 years, but the spreading delta variant threatens to slow growth in H2 and underscores potential risks from subsequent variants until a majority of the world’s population is vaccinated against Covid-19. Around 40% of the global populace has received at least one vaccine dose. However, daily vaccination rates in already-lagging developing and low-income countries could fall as the US and other vaccine-rich countries administer booster jabs to counteract waning vaccine efficacy. This could exacerbate diverging growth rates this year: we are forecasting 6.3% expansion in North America and 5.5% in Asia Pacific - the fastest growing regions - in contrast to the slowest growing regions of Middle East & North Africa, and Sub-Saharan Africa which will grow by 2.8% and 2.5% respectively.

Inflation concerns persist for global consumers and firms, but central banks’ policies will remain divergent in H2. US, Canada and euro-zone central banks will hold key rates while projecting moderating or muted monthly inflation. Developing countries, however, hiked key rates in recent months with further tightening likely, driving up debt servicing costs and fiscal deficits. 94% of 31 decisions in June to August that spanned East Asia, Eastern Europe, and Latin America were rate hikes to curb inflation fuelled by food and energy prices. While food inflation may have peaked with a 1.2% m/m decline in July - the second consecutive monthly fall in the FAO Food Price Index - volatile energy prices, up 4.8% in July, are an ongoing concern.

With four of the five busiest cargo ports in China accounting for container traffic of roughly 120m TEU per annum (2020), the country’s Covid-19 ‘zero tolerance’ policy is a major risk factor for already-strained global supply chains during the peak August to October shipping period. A single case of Covid-19 already resulted in China’s container handling capacity falling by 1-2%, as happened with the two-week closure of a Ningbo port terminal in August. Longer shutdowns could delay shipments by several weeks: in August, shipments from China to the US took 5.2 days longer than the same month in 2020, with median journey time estimated at 22 days.

Monthly changes in country risk ratings and outlook

 

Ratings Upgrades

  • Belgium
  • United Kingdom
  • Finland
  • Zimbabwe

 

Ratings Downgrades

  • Colombia
  • Philippines
  • Senegal
  • Slovenia
  • Sweden
  • Tunisia

 

Dun & Bradstreet Country Risk Analysis

Country

August 2021

September 2021

Change

Country Risk Rating Upgrades (risk level has improved)

Belgium

DB3a

DB2d

1 quartile

United Kingdom

DB3a

DB2d

1 quartile

Finland

DB2d

DB2c

1 quartile

Zimbabwe

DB7

DB6d

1 quartile

Country Risk Rating Downgrades (risk level has deteriorated)

Colombia

DB4b

DB4d

2 quartiles

Philippines

DB4c

DB4d

1 quartile

Senegal

DB4c

DB4d

1 quartile

Slovenia

DB3d

DB4a

1 quartile

Sweden

DB2b

DB2c

1 quartile

Tunisia

DB6c

DB6d

1 quartile

Outlook Trend Upgrades (from/to)

Argentina

Deteriorating

Stable

 

DRC

Deteriorating

Stable

Gabon

Deteriorating

Stable

Lebanon

Deteriorating Rapidly

Deteriorating

Mozambique

Deteriorating

Stable

Namibia

Deteriorating

Stable

Rep. of North Macedonia

Deteriorating

Improving

Zambia

Deteriorating

Stable

 

Outlook Trend Downgrades (from/to)

Afghanistan

Deteriorating

Deteriorating Rapidly

 

Bangladesh

Improving

Stable

Guatemala

Stable

Deteriorating

Libya

Improving

Deteriorating

Pakistan

Stable

Deteriorating

 

REGIONAL SUMMARIES

 

North America

Recovering demand and policy support helped improve the health of US small businesses, as B2B payment and credit card delinquencies declined in Q2. In Canada, goods and services activity diverge as services continue to recover while goods faltered with business reopenings. However, the delta variant threatens to slow the region’s growth pace in H2.

 

Western and Central Europe

Covid figures are rising again, but with more than 60% of European citizens fully vaccinated, hospitalisation figures remain low and governments are reluctant to reintroduce lockdowns. Nonetheless, confidence indicators were levelling off in August, with the EU-27 Economic Sentiment Indicator dropping for the first time since January.

 

Asia Pacific

The slowing growth in China, disruptions to economic activity in countries witnessing surges in cases, and geopolitical risks emanating from Afghanistan are likely to have impaired the growth trajectory of the Asia pacific region. China’s slowdown is likely to pose headwinds for commodity-linked trade, currencies and stock markets.

 

Latin America & Caribbean

Central banks are tightening their monetary policy position with rate hikes aimed at dampening inflation driven by higher food, energy and commodity prices. Debt burdens and fiscal deficit are set to rise with further hikes in H2. Socio-political and economic discontent in Chile, Colombia and Peru keep political/insecurity risks elevated.

 

Eastern Europe & Central Asia

We expect a solid return to growth for the region in 2021: 3.7% y/y, although downside risks remain high, given the spread of new-variant Covid-19 infections that threaten to overwhelm health systems, combined with vaccine supply issues and hesitancy. Rising inflation is also a concern.

 

Middle East & North Africa

In 2021, real GDP growth at 2.8% for the region will be the second-lowest globally as output is hit by the OPEC+ production quotas, the impact of the Covid-19 restrictions and the failure in many countries to roll out comprehensive vaccine programmes. However, in 2022 growth of 4.3% will outperform global growth of 4.2%.

 

Sub-Saharan Africa

The regional outlook indicator remains at ‘deteriorating’ because of an ongoing resurgence of Covid-19, a slow vaccine roll-out, instability in several locations (such as Mozambique) and civil war in Ethiopia. Stronger commodity prices benefit most regional states, thereby trimming debt risks, but the upswings are threatened by softer demand.

 

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:

 

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.

 

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