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Country Risk and the Global Outlook
July 2020
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Signs of hope?
Commentary:
“The coronavirus pandemic is creating the biggest economic shock since 1929, easily eclipsing the most recent 2008-09 global financial crisis. Unsurprisingly, the impact of the global pandemic has again been the dominant theme in our monthly analytical output. Widespread quantitative easing means that financial asset prices globally are not reflecting the shock to fundamentals. But with many countries easing their lockdowns, a more varied picture of upgrades and downgrades has emerged. Worryingly, a sharp recession is still forecast, and we expect that the world economy will not attain pre-pandemic levels of activity before 2022. In India, the rising number of COVID-19 cases has led the country to become the 4th largest in terms of total number of reported cases. We expect India’s economy to contract this fiscal year after four decades of positive growth. In March, we downgraded India’s rating to DB5c from DB4d – both the magnitude of the downgrade and the risk level are the highest since 1994, said Dr Arun Singh, Chief Economist, Dun & Bradstreet.”
INTRODUCTION
After several months where Dun & Bradstreet analysis (Country Insight) was dominated by a solid wall of ratings downgrades, our most recent cycle of reports has seen the emergence of some faint signs of hope for the future. These positive signs came in the form of outlook upgrades for 10 of the 132 countries we cover. Out of 10 countries, 5 were in the Western Europe region, 3 in the Americas, and 1 each in both Eastern Europe and Sub-Saharan Africa. Despite these pockets of positive news, though, there was also another cluster of ratings downgrades elsewhere – 8 in total: 3 in the Americas, 2 in Asia-Pacific, another 2 in Eastern Europe, and 1 in Sub-Saharan Africa.
The wider global context remains sombre, with coronanvirus still spreading and economic prospects looking poor. We are currently forecasting that the global economy will contract by 5.2% in 2020 – the biggest decline since the Second World War and a far stronger contraction than the 1.7% recorded in 2009 during the global financial crisis. Furthermore, unlike in 2009, all regions will experience a contraction. Indeed, our analysis predicts that the global economy will not reach pre-pandemic levels of activity again before 2022, even if economies that managed to contain the virus accelerate their divergence from those that failed to do so. Looking ahead, any recovery into 2021 (even without a second bout of the pandemic) is going to be curtailed by several factors. Foremost will be the presence of degrees of social distancing (despite the easing of lockdowns), higher levels of post-lockdown unemployment and poverty, and increased saving by those in employment. Another element for the future is that the productivity of urban space will suffer a prolonged negative shock as long as social distancing applies and people fear the coronavirus, whether or not countries have contained their epidemics, with consequences for commercial real estate, employment and credit quality.
RATINGS UPGRADES
RATINGS DOWNGRADES
Monthly changes in country risk ratings and outlook trends
Dun & Bradstreet Country Risk Analysis |
|||
Country |
June 2020 |
July 2020 |
Change |
|
|||
Country Risk Rating Upgrades (risk level has improved) |
|||
Slovenia |
DB4a |
DB3c |
2 quartiles |
|
|||
Country Risk Rating Downgrades (risk level has deteriorated) |
|||
Brazil |
DB4c |
DB5a |
2 quartiles |
Cambodia |
DB6b |
DB6c |
1 quartile |
Colombia |
DB4a |
DB4b |
1 quartile |
Jamaica |
DB5a |
DB5b |
1 quartile |
Papua New Guinea |
DB5d |
DB6a |
1 quartile |
Turkmenistan |
DB6b |
DB6c |
1 quartile |
Uganda |
DB5b |
DB5c |
1 quartile |
Uzbekistan |
DB6b |
DB6c |
1 quartile |
|
|||
Outlook Trend Upgrades |
|||
Argentina |
Deteriorating Rapidly |
Deteriorating |
|
Canada |
Deteriorating |
Stable |
|
France |
Deteriorating |
Stable |
|
Italy |
Deteriorating Rapidly |
Stable |
|
Netherlands |
Deteriorating |
Stable |
|
Serbia |
Deteriorating Rapidly |
Deteriorating |
|
Sweden |
Deteriorating |
Stable |
|
Switzerland |
Deteriorating |
Stable |
|
Tunisia |
Deteriorating |
Stable |
|
United States of America |
Deteriorating |
Stable |
|
|
|||
Outlook Trend Downgrades |
|||
Lebanon |
Stable |
Deteriorating |
|
Paraguay |
Stable |
Deteriorating Rapidly |
REGIONAL SUMMARIES
Asia Pacific
New coronavirus scares in Beijing, and most states in India reporting rising cases in June, showed that the region – despite early successes – is unlikely to shake off the economic effects before the end of 2020. Only a narrow range of sectors, such as Taiwan Region’s technology exports, are enjoying Covid-19-related pandemic tailwinds.
North America
The sharp rebound of some macro indicators gives credence to thoughts of a V-shaped recovery in activity in both the US and Canada, but the reappearance and sudden uptick in Covid-19 cases in Texas, Florida, Arizona and South Carolina indicate that the virus is still a macroeconomic risk, with the potential to disrupt the recovery.
Europe (EU + Iceland, Norway and Switzerland)
Forward-looking indicators in some countries have started to recover somewhat as lockdown measures are gradually being phased out. As a consequence, Dun & Bradstreet has upgraded a limited amount of trend outlooks. That said, a full economic recovery is not expected until 2022 at least.
Latin America & Caribbean
The region will record its steepest recession since the Great Depression, as Latin America is the coronavirus pandemic’s new epicentre. Brazil’s fatality rate is the second-highest globally, behind the US. Mexico has the second-highest Covid-19 deaths in the region; peaks are not yet reached. Recovery is expected to take until 2021 to develop.
Eastern Europe & Central Asia
The gradual recovery of the oil price since late April is helping hydrocarbon-rich economies in the region. That said, prices are still significantly below their pre-crisis readings and Russia, the region’s most important economy, is still hit hard by Covid-19, reporting more than half a million cases.
Middle East & North Africa
Regional PMIs indicate that business activity in the region continues to fall month on month; albeit the rate of contraction eased somewhat in May. Lockdowns are easing across the region despite a surge in new cases, particularly in the oil-rich Gulf states, raising concerns about the possibility of renewed lockdowns to come.
Sub-Saharan Africa
Regional countries continue to seek support to counter the downturn caused by multilateral institutions’ policies to stop the spread of Covid-19. But private sector organisations have yet to respond to calls for debt assistance. According to the WHO, new cases and associated deaths continue to rise across the region.
REAL GDP GROWTH (%)
Sources: IMF; JPMorgan; Dun & Bradstreet
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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Disclaimer
Whilst Dun & Bradstreet attempts to ensure that the information provided in our country reports is as accurate and complete as possible, the quantity of detailed information used and the fact that some of the information (which cannot always be verified or validated) is supplied by third parties and sources not controlled by Dun & Bradstreet means that we cannot always guarantee the accuracy, completeness or originality of the information in some reports, and we are therefore not responsible for any errors or omissions in those reports. The recipients of these reports are responsible for determining whether the information contained therein is sufficient for use and shall use their own skill and judgement when choosing to rely upon the reports.
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