The Global Business Risk Report Q2 2020

Ten Key Global Risks for Businesses

The Dun & Bradstreet Global Business Risk Report (GBRR) 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 sets a new record-high, indicating that the outlook for cross-border businesses is at its worst level since the index was introduced in Q3 2014.

Risks at highest-ever level

For the second successive quarter, Dun & Bradstreet’s GBI score worsened to its highest-ever level. The Q2 score of 332, up from 318 in Q1, is now at an extreme level, having trended upwards from its record low of 219 in Q1 2018. This rise indicates the high level of uncertainty facing businesses that operate cross-border. The Q2 score is also well above the long-term average of 260.7.

Seven new risks in the global top ten

Our top ten 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.

Highlighting the impact of the coronavirus outbreak on the ever-evolving global business environment, six of the seven new entries in our Q2 2020 are directly related to the coronavirus pandemic. The other new risk is related to the US’s overnight borrowing market.

The seven new-entry risks are:

  1. The global pandemic, affecting emerging-market and advanced countries alike with its impacts on mortality rates and the global economy, brings an unprecedented fiscal emergency, damaging all grades of sovereign creditworthiness for the medium term (GBI of 40, out of a maximum 100);
  2. US-China relations deteriorate as the US seeks to assign ultimate responsibility for its economic disaster, impeding global public health co-operation and damaging equity values through the return of higher geopolitical risk premia (GBI of 36);
  3. As leading economies struggle to return to normality in Q3 2020, global equity valuations fail to recover from their collapse in Q1 2020 in the context of the coronavirus outbreak and unexpected national and epidemiological security barriers to supply chains, trade and investment (GBI of 36);
  4. The deterioration in fiscal positions of governments around the globe due to Covid-19 responses creates long-term funding challenges, including public and social projects and programmes, resulting in deteriorating infrastructure quality and undermining global business opportunities (GBI of 36);
  5. The Federal Reserve loses control of overnight borrowing rates in the Repo market, sending the overnight rate back to September 2019 highs, severely disrupting global capital markets (GBI of 35);
  6. The fallout from Covid-19 raises unemployment significantly, ushering in populist governments with nationalist identities (in the democracies) and increased anti-government protests (in authoritarian countries); with both impacting negatively on the global business operating environment (GBI of 30); and
  7. The increased government debt stocks caused by coronavirus rescue packages lead to a renewed euro-zone crisis, disrupting global supply chains (GBI of 28).

Among the pre-existing risks in our top ten, the GBI score has improved for one risk, while the other two have remained the same.

The overall top ten for Q2 highlights the nature of the coronavirus pandemic, with four of the risks associated with it being pan-regional, and one each from North America and from West and Central Europe. Of the four non-Covid-19 risks, two originate in North America, one in West and Central Europe, and one is pan-regional.

The impacts of the coronavirus pandemic are spread across different types of risks: geopolitical (2), markets (2), politics (1) and economics (1). There are four different types of non-Covid-19 risks: geo-political, markets, structural and technological. This reinforces the fact that finance, procurement and supply-chain teams across all business sectors need to combat the impacts of an increasingly complex and globalised world.

Concerns over markets

Three of our top ten risks are how the present events will undermine markets, lowering confidence and raising risk premia, and thus undermining prospects for doing business well into the medium term. In first place, with a GBI score of 40, is the pan-regional risk that the global pandemic – which is affecting emerging-market and advanced countries alike with its impacts on mortality rates and the global economy – brings an unprecedented fiscal emergency, damaging all grades of sovereign creditworthiness for the medium term.

The latest GBI score highlights that the coronavirus outbreak has pushed the business operating environment to its most challenging level since the index began.
 

In equal second place is our concern that, as leading economies struggle to return to normality in Q3, global equity valuations fail to recover from their collapse in Q1 2020 in the context of the coronavirus outbreak and unexpected national and epidemiological security barriers to supply chains, trade and investment. This risk has a GBI of 36 and is also pan-regional.

 

The third market-oriented risk is the worry that the Federal Reserve loses control of overnight borrowing rates in the Repo market, sending the overnight rate back to September 2019 highs, severely disrupting global capital markets. This risk emanates from North America and has a GBI of 35.

Geopolitics and politics affect the risk outlook

Three geopolitical risks and one other political risk make up four of the top ten risks for businesses operating in the global environment. Two of the geopolitical risks are placed at equal second, with a GBI of 36, and both emanate from North America. The first is our concern that US-China relations deteriorate as the US seeks to assign ultimate responsibility for its economic disaster, impeding global public health co-operation and damaging equity values through the return of higher geopolitical risk premia.

The second is that the continuation of protective trade policies emanating from the US puts additional pressure on global supply chains, further altering existing trade relationships while forcing continued transformations to existing supply chains. This risk featured in our previous GBRR, with an unchanged GBI score.

The third geopolitical risk is in equal eighth place, with a GBI of 28, and emerges from West and Central Europe: we are concerned that the increased government debt stocks caused by coronavirus rescue packages could lead to a renewed euro-zone crisis, disrupting global supply chains.

The final political risk is that the fallout from Covid-19 raises unemployment significantly, ushering in populist governments with nationalist identities (in the democracies) and increased anti-government protests (in authoritarian countries); with both impacting negatively on the global business operating environment. The risk is pan-regional, has a GBI of 30, and is ranked seventh in the top ten.

Other factors undermining doing business

The final three risks are associated with economic developments, structural change, and technological innovation. In equal second place, with a GBI of 36, is the only economic risk in our top ten. In this case we are worried that the deterioration in fiscal positions of governments around the globe due to Covid-19 responses creates long-term funding challenges – including for public and social projects and programmes – resulting in deteriorating infrastructure quality and undermining global business opportunities.

In equal eighth place, with a GBI of 28 (down from 30 in the previous report) is the structural factor. This is the worry that the further decline of the automotive sector causes problems for Europe’s industrial sector, with knock-on effects for global supply chains.

The final risk is technological in nature, and has the same GBI of 27 (and in tenth place) as in the previous report. This is our concern about technological threats, predominantly driven by artificial intelligence: threats of cyber-attacks, data theft, fraudulent activities by state and non-state actors, and the risks of outages of information and networks are rising continuously.

Summary: Business environment risk is at record heights

The Dun & Bradstreet Global Business Impact score for Q2 2020 indicates that the risks confronting businesses are at a record-high.
 

Dun & Bradstreet’s Global Business Impact score for Q2 2020 shows that the risks confronting businesses have hit a new record-high, driven mainly by the outbreak of the novel coronavirus: the outbreak illustrates how unexpected events can suddenly worsen the risk environment for businesses operating cross-border. The Q2 2020 score highlights that business decision-makers need to have contingency plans in place for the sudden disruption of seemingly secure supply chains. Furthermore, the geographical spread and diversity of risks is shown by our top ten ranging across categories as diverse as geopolitical risks (3), markets (3), politics (1), economics (1). structural (1) and technological (1).

 

Top ten risks

Ranking Region Risk Likelihood of Event (%) Global Impact (1-5) Global Business Impact Score (1-100)
1 Pan-regional The global pandemic, affecting emerging-market and advanced countries alike, with its impacts on mortality rates and the global economy, brings an unprecedented fiscal emergency damaging all grades of sovereign creditworthiness for the medium term. 40 5 40
=2 North America US-China relations deteriorate as the US seeks to assign ultimate responsibility for its economic disaster, impeding global public health co-operation and damaging equity values through the return of higher geopolitical risk premia. 60 3 36
=2 North America The continuation of protective trade policies emanating out of the US puts additional pressure on global supply chains, further altering existing trade relationships while forcing continued transformations to existing supply-chains. 60 3 36
=2 Pan-regional Global equity valuations fail to recover from their collapse in Q1 in the context of the coronavirus outbreak and unexpected national and epidemiological security barriers to supply chains, trade and investment, as leading economies struggle to return to normality in Q3. 60 3 36
=2 Pan-regional The deterioration in fiscal positions of governments around the globe due to Covid-19 responses creates long-term funding challenges including public and social projects and programs, resulting in deteriorating infrastructure quality undermining global business opportunities. 60 3 36
6 North America The Federal Reserve losses control of overnight borrowing rates in the Repo market, sending the overnight rate back to September 2019 highs, severely disrupting global capital markets. 35 5 35
7 Pan-regional The fallout from Covid-19 raises unemployment significantly, heralding in populist governments with nationalist identities in the democracies and increased anti-government protests in authoritarian countries; both impacting negatively on the global business operating environment. 50 3 30
=8 West & Central Europe The increased government debt stocks, caused by coronavirus rescue packages leads to a renewed euro zone crisis, disrupting global supply chains. 35 4 28
=8 West & Central Europe The further decline of the automotive sector causes problems for Europe’s industrial sector, with knock-on effects for global supply chains. 70 2 28
10 Pan-regional Technological threats, predominantly driven by artificial intelligence, lead to economic damage and geopolitical risks. Threats of cyber-attacks, data theft, fraudulent activities by state and non-state actors, and the risks of outages of information and networks rise continuously, thereby undermining the global business environment. 45 3 27