The Global Business Risk Report Q3 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 remains at the record-high of 332, indicating that the outlook for cross-border businesses is at its worst level since the index was introduced in Q3 2014.

Risks remain at highest-ever level

For the second successive quarter, Dun & Bradstreet’s GBI score remains at its highest-ever level. The Q3 score of 332, the same as in Q2, is at an extreme level, having trended upwards from its record low of 219 in Q1 2018. This level indicates the high level of uncertainty facing businesses that operate cross-border. The Q3 score is also well above the long-term average of 263.3, while the year-to-date average (327.3) is the highest recorded for the first three quarters of any year.

Six 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 evolving impact of the coronavirus outbreak on economic conditions and thus the ever-changing global business environment, five of the six new entries in our Q3 2020 report are directly related to the coronavirus pandemic. The other new risk is related to the worsening political and economic crisis in Lebanon.

The five new-entry risks are:

  1. The re-establishment of forced business shutdowns and a persistent rise in Covid-19 cases in the US severely saps global demand for goods and services, and undermines remittance flows, weakening the recovery and prolonging the global recession (GBI of 39, out of a maximum 100).
  2. Global equity valuations deteriorate as it becomes clear that depressed productivity levels in urban areas (due to indefinite social distancing) mean that leading economies will struggle for years to return to normality (GBI of 30);
  3. A new Covid-19 wave in Spain, France and other European markets requires another round of lockdowns, undermining business conditions across the EU (GBI of 27);
  4. Elevated delinquency rates for Commercial Mortgage-Backed Securities (CMBS) in the North American lodging and retail sectors lead to bankruptcies and far-reaching consequences for multinational investors (GBI of 26);
  5. Failure to contain coronavirus outbreaks in the leading copper-producing countries – Chile and Peru – forces an extension and/or tightening of quarantine measures, leading to a decline in global copper supply and driving prices higher in H2 (GBI of 24); and
  6. Political instability in Lebanon encourages active intervention by external actors and encourages Hezbullah to take aggressive action against Israel, triggering further regional instability (GBI of 24).

Among the four pre-existing risks in our top ten, the GBI score has worsened for three of the risks, while one had remained the same.

The overall top ten for Q3 highlights the nature of the coronavirus pandemic, with three of the risks associated with it being pan-regional, two stemming from North America, and one each emanating from West and Central Europe and Latin America. Of the three non-Covid-19 risks, two originate in North America, and one in the Middle East and North Africa.

The impacts of the coronavirus pandemic are spread across different types of risks: markets (3), economic growth (3) and politics (1). The three non-Covid-19 risks are all political in nature. The widespread nature of the risks highlighted in this report 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.

Market concerns undermine risks

Three of our top ten risks relate to how the Covid-19 pandemic 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 48 (up from 40 in the previous report), 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 eighth place is our concern that elevated Commercial Mortgage-Backed Securities (CMBS) delinquency rates in the North American lodging and retail sectors lead to bankruptcies and far-reaching consequences for multinational investors. This new entry has a GBI of 26 and emanates from North America.

 

The third market-oriented risk is the worry that the failure to contain coronavirus outbreaks in the leading copper-producing countries – Chile and Peru – forces an extension and/or tightening of quarantine measures, leading to a decline in global copper supply and driving prices higher in H2. This risk emanates from Latin America, has a GBI of 24, and is a new entry in equal ninth place.

Geopolitical and political concerns

Four geopolitical/political risks feature in the top ten risks for businesses operating in the global environment. The first geopolitical risk is in second place overall, with a GBI of 45 (up from 36 in the previous report). This risk, emanating from North America, is that the continuation of protective trade policies driven from the US puts additional pressure on global supply chains, further altering existing trade relationships while forcing continued transformations to existing supply chains.

In fourth place, and also emanating from North America, is our concern that US-China relations deteriorate as the US seeks to assign ultimate responsibility for its economic disaster, thus impeding global public health co-operation and damaging equity values through the return of higher geopolitical risk premia. The GBI of this risk has risen from 36 to 39.

The third political risk, in equal fifth place, has a GBI of 30 (the same as in the previous report) and is pan-regional in nature. We are worried that the fallout from Covid-19 raises unemployment significantly, ushering in populist governments with nationalist characteristics in the democracies and increased anti-government protests in authoritarian countries; with both impacting negatively on the global business operating environment.

The final geopolitical risk is in equal ninth place, with a GBI of 24, and emerges from the Middle East and North Africa: we are concerned that political instability in Lebanon encourages active intervention by external actors and encourages Hezbullah to take aggressive action against Israel, triggering further regional instability.

Risks curtailing economic growth

The final three risks in the Q3 top ten are related to the impact of the Covid-19 pandemic on curtailing economic growth, thereby undermining the business operating environment. The first of these risks is that the re-establishment of forced business shutdowns and a persistent rise in Covid-19 cases in the US severely saps global demand for goods, services, and remittances, weakening the recovery and prolonging the global recession. This new entry, emanating from North America, is in equal third place, with a GBI of 39.

The second risk associated with economic growth is also a new entry, at equal fifth with a GBI of 30, and is pan-regional in nature. This risk is that global equity valuations deteriorate as it becomes clear that depressed productivity levels in urban areas (due to indefinite social distancing) will prompt leading economies to struggle for years to return to normality.

The final risk is that a new Covid-19 wave in Spain, France and other European markets requires another round of lockdowns, undermining business conditions across the EU. This new entry is in seventh place, with a GBI of 27.

Summary: Business environment risk remains at record heights

The Dun & Bradstreet Global Business Impact score for Q3 2020 indicates that the risks confronting businesses remain at a record high.
 

Dun & Bradstreet’s Global Business Impact score for Q3 2020 shows that the risks confronting businesses remain at the record-high first experienced in Q2. The elevated level of risk has been 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 Q3 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 in our top ten underlines the importance of a taking a broad approach to mitigating risks.

 

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 profits, employment and tax revenues, brings an unprecedented fiscal emergency, damaging all grades of sovereign creditworthiness for the medium term.
60 4 48
=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.
75 3 45
=3 North America The re-establishment of forced business shutdowns and a persistent rise in Covid-19 cases in the US severely saps global demand for goods and services, and undermines remittance flows, weakening the recovery and prolonging the global recession.
65 3 39
=3 North America
US-China relations deteriorate as the US seeks to reassign ultimate responsibility for its economic disaster, impeding global public health co-operation and damaging equity values through the return of higher geopolitical risk premia.
65 3 39
=5 Pan-regional Global equity valuations deteriorate as it becomes clear that depressed productivity levels in urban areas (due to indefinite social distancing) mean that leading economies will struggle for years to return to normality.
50 3 30
=5 Pan-regional
The fallout from Covid-19 raises unemployment significantly, heralding 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
7 West & Central Europe
A new Covid-19 wave in Spain, France and other European markets requires another round of lockdowns, undermining business conditions across the EU.
45 3 27
8 North America
Elevated Commercial Mortgage-Backed Securities (CMBS) delinquency rates in the North American lodging and retail sectors lead to bankruptcies and far-reaching consequences for multinational investors.
65 2 26
=9 Latin America
Failure to contain coronavirus outbreaks in the leading copper-producing countries – Chile and Peru – forces an extension and/or tightening of quarantine measures, leading to a decline in global copper supply and driving prices higher in H2.
60 2 24
=9 Middle East & North Africa
Political instability in Lebanon encourages active intervention by external actors and encourages Hezbullah to take aggressive action against Israel, triggering further regional instability.
60 2 24