The Global Risk Matrix Q4 2018

Ten Key Global Risks for Businesses

The Dun & Bradstreet Global Risk Matrix (GRM) ranks the biggest threats to business based on each risk scenario’s potential impact on companies, assigning a score to each risk. The scores from the top ten risks are used to calculate an overall Global Business Impact (GBI) score.

Our latest GBI score highlights a third successive worsening in outlook for cross-border businesses, taking risk to its highest level since Q4 2016. Furthermore, the score remains above the long-term average for a second consecutive quarter. 

Global Risk Assessment Worsens for Third Successive Quarter

 Dun & Bradstreet’s GBI score worsened for a third successive quarter, increasing from 265 (out of a maximum 1,000) in Q3 2018 to 270 in Q4, indicating a deterioration in the global business operating environment. The Q4 score is the highest since the politically-induced spike of Q4 2016 and is well above the long-term average (248.5). The average for 2018 (250.0) is the highest annual average since 2014. It also shows that there has been a significant worsening in business risk through 2018 since the record low of 219 seen in the first quarter.

Our top ten economic risks combine an assessment of: (i) the magnitude of the event’s probable effect on the global business operating environment, on a scale of 1 to 5 (where 1 is the smallest impact and 5 is the largest); and (ii) the likelihood of the event happening. 

Three New Economic Risks in the Global Top Ten

Highlighting the ever-evolving global environment, there are three new entries in Dun & Bradstreet’s Q4 2018 Global Risk Matrix: one each from Latin America, Asia-Pacific and Western Europe. 

The three new economic risks are:

  1. The Argentinian peso collapses and drives up fears of sovereign debt default which triggers a massive global bond sell-off (GBI 27, out of a maximum 100);
  2. In China, US tariffs hit business profits. Contagion from bad corporate/municipal debts then triggers a substantial slowdown, requiring serial bank rescues (GBI of 27); and
  3. In Germany, Angela Merkel's slow departure from power leads to the collapse of the current coalition government and triggers early elections, creating instability in the EU (GBI of 21).

Among our pre-existing threats to the global economy, five are unchanged, while one GBI score has deteriorated and one has improved. Overall, risks remain geographically spread and diverse, associated with trade wars, politics, economic developments, new technology and climate change. This reinforces the fact that finance, procurement and supply chain teams across all business sectors have to combat the impacts of an increasingly complex and globalised world. 

Trade War Risks Predominate

Our Q4 2018 Global Risk Matrix indicates that concerns around trade wars are elevated, raising risk for doing cross-border business; three of our top ten commercial risks are associated with this factor. In first place, with a GBI of 42 (up from 30 in the previous report), is our concern that US-China trade negotiations fail to stop a trade war, which spirals, with negative secondary effects offsetting new opportunities and cooling global trade growth. In equal third place with a GBI of 27 is a new entry. This relates to the fact that in China trade-related tariffs hit business profits. The contagion from consequent bad corporate/municipal debts then triggers a substantial slowdown in the economy, requiring serial bank rescues. The third trade wars-related risk is in equal eighth place with a GBI of 21 (the same as the previous report). In this case we are worried that US-led trade skirmishes prompt the adoption of retaliatory barriers to trade by non-US players. The ripple effects cause global growth to slow as cross-border operational risk increases.

Other Political Factors

In seventh place, with a GBI of 24 (the same as in the previous report) is our concern that a military coup against Venezuela’s President Nicolas Maduro could lead to a sharp fall in domestic oil production, triggering oil prices to rise to over USD110 per barrel. The second political risk is related to Angela Merkel’s departure from power in the EU powerhouse Germany, which could lead to the collapse of the current coalition government. This would trigger early elections, creating uncertainty across Europe and slowing continental growth.

Economic Concerns

Three economic concerns feature in this quarter’s GRM. In equal third place with a GBI of 27 is a new entry. This relates to a potential collapse of the Argentinian peso, which drives up fears of sovereign debt default, in turn triggering a massive global bond sell-off causing wholesale disruption in capital markets. In sixth place with a GBI of 25 (the same as the previous report) is the pan-regional concern that growing global debt, allied to rising interest rates, will trigger a fresh debt crunch, creating a systemic banking crisis and sending the global economy into contraction. The final economic risk is in equal eighth place with the same GBI as previously (21) is a threat emanating from North America. We are worried that US fiscal stimulus leads to an overheating of the US economy, heralding a consequent slowdown which would, in turn, impact global economic growth.

Additional Global Economic Analysis

The final two factors are both pan-regional. In second place with a GBI of 36 (the same as the previous report) is our concern that the rapidly growing problem of cyber-dependence and connectivity will lead to more frequent and more damaging cyber-security issues, with ramifications for doing business. In fifth place overall, with a GBI of 26, down from 30 in the Q3 report, is a risk associated with climate change. Specifically, we are concerned that jetstream instability continues to create persistent, anomalous weather patterns across the Northern Hemisphere, increasing costs to the public and businesses.

Summary: Business Environment Deteriorates Again

The Dun & Bradstreet Global Business Impact score for Q4 2018 shows that risks facing businesses have worsened for a third consecutive quarter (following the record low score recorded in Q1 2018). The Q4 score highlights that, despite the embedding of the global economic recovery, business decision-makers need to monitor the global business environment continually and carefully. The geographical spread and diversity of risks around trade wars, politics, economic developments, new technology, and climate change ensure the business environment remains challenging.

Top Ten Economic Risks Q4 2018

The Global Risk Matrix: Q1 2018

The Global Risk Matrix: Q2 2018

The Global Risk Matrix: Q3 2018

The Global Risk Matrix Q4 2017