Country Risk and the Global Outlook – June 2021

Divergence increases amid pandemic

Commentary:

"A broad post-pandemic global recovery will remain elusive in 2021 with big divergences between and within regions. Recoveries are subject to multiple headwinds arising from debt levels, supply-side constraints and the pandemic itself. Supply chain uncertainty is elevated, keeping demand for inventories high and thus driving input inflation expectations,” said Dr Arun Singh, Chief Economist, Dun & Bradstreet.

INTRODUCTION

Our forecasts show considerable regional divergences for real Gross Domestic Product (GDP) growth in 2021, as different economies continue to face the challenges of the Covid-19 pandemic. In North America, the success of the vaccine programmes will see growth come in at 6.3% - the strongest regional forecast - compared with a contraction of 3.7% in 2020.

Asia-Pacific will experience the strongest growth of 5.8%, having seen a contraction of only 1.6% in 2020, as many regional countries were able to contain the initial spread more successfully than counterparts elsewhere. However, excluding China, the region is due to recover back to its 2019 output only in 2022. Our trend for the Asia-Pacific was still stable in June 2021, but the increase in the epidemic in countries and jurisdictions that had hitherto controlled it is cause for concern and evidence of the threat of the variants.

Growth will come in at 4.2% in Europe, where vaccines are being rolled out, and 4.0% in Latin America, which is still experiencing increasing cases levels but will be boosted by strong commodity prices.

The latter will also support growth in Eastern Europe and Central Asia (3.5%), Sub-Saharan Africa (2.7%), despite its inability to access and roll out vaccines, and the Middle East and North Africa (2.5%).

However, growth will be subject to a number of headwinds, including the need to implement measures to contain Covid-19, the higher levels of sovereign, corporate and household debt, supply-side constraints and short-term inflation, including sharply rising commodity prices.

A consequence of the combination of strong commodity prices and highly indebted emerging economies is the rising threat of direct and indirect nationalisation. Recent threats include the potential nationalisation of a gold mine in the Kyrgyz Republic and proposed increases in taxes on copper extraction companies in Chile and Peru. Meanwhile, in sub-Saharan Africa, governments in Zambia, Ghana and Uganda are eyeing commodity producers as a way to increase revenues.

The longer-term political effects of the pandemic could reach into the democracies, with International Monetary Fund (IMF) research showing that past epidemics led to increased social unrest, after a delay. The International Labour Organization (ILO)  has warned that the pandemic in 2021 will have caused 75m jobs to disappear and its data show the world lost 5% of working hours in Q4 2020, 10% in Europe and South America.

 

RATINGS UPGRADES

·       United States of America

RATINGS DOWNGRADES

·       India

Monthly changes in country risk ratings and outlook trends

Dun & Bradstreet Country Risk Analysis
Country May 2021 June 2021 Change
 
Country Risk Rating Upgrades (risk level has improved)

United States of America

DB2c

DB2b

1 quartile

 
Country Risk Rating Downgrades (risk level has deteriorated)
India DB5b DB5c 1 quartile
 
Outlook Trend Upgrades (from/to)
Costa Rica Deteriorating Stable  
Cyprus Deteriorating Stable
Denmark Deteriorating Improving
Greece Deteriorating Stable
Hungary Deteriorating Improving
Iceland Deteriorating Improving
Iran Deteriorating Stable
Italy Stable Improving
Libya Stable Improving
Romania Deteriorating Stable
Sierra Leone Deteriorating Stable
Slovakia Deteriorating Improving
Slovenia Deteriorating Stable
South Korea Stable Improving 
Spain Stable Improving
 
Outlook Trend Downgrades (from/to)
Israel Stable Deteriorating  
Kyrgyz Republic Stable Deteriorating

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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