Global Supply Chain Risk Improved for Fourth Straight Quarter

Dun & Bradstreet’s Global Risk Index score improved for the fourth straight quarter, dropping from 80.3 in Q3 2017 to 79.5 in Q4, according to the latest findings from the Chartered Institute of Procurement and Supply (CIPS) Risk Index, powered by data and analysis by Dun & Bradstreet economists. This latest reading is the first time the index dropped below the 80-point mark in the past two years, bringing it down to a level not seen since Q1 2016. Supply chain risks are lower and are expected to improve in the near term on the back of faster global growth.

Here’s why:

  • Synchronized acceleration in growth across major global economies
  • Strengthening commodity prices boost growth potential in commodity-exporting, emerging economies
  • Upgrades across a majority of countries in terms of operational risk assessments

The near-term greatest risks to the global supply chain are:

  • Continued negotiation and uncertainty around NAFTA
  • Geopolitical risks in Eastern Europe and Central Asia, as well as elevated levels of non-performing loans
  • Lack of majority in Italy in the March election, inviting future uncertainty
  • Western sanctions against Russia
  • Credit quality in China and India
  • Ongoing high levels of insecurity, particularly in war-torn Iraq, Libya, Syria and Yemen
  • US withdrawal from the Joint Comprehensive Plan of Action, better known as the Iran deal
  • Economic crisis in Venezuela
  • Elevated political risk in Sub-Saharan Africa

We are currently forecasting strengthening growth in 2018, in line with the IMF and World Bank. Our forecast of 3.2% would be the strongest global growth since the 2010 rebound from the 2008–2009 recession. In regional terms, the outlook for North America (in particular, the US) is now improving, as is Western Europe, and we have recently upgraded our growth forecast for China (although we remain concerned about credit quality). As a result, our outlook for Asia-Pacific remained at “stable.” What follows are excerpts of risk by country and region. The full CIPS Risk Index report is here.

Supply Chain Risk by Country and Region

North America

Supply chain risk in North America remained unchanged in Q4 2017, as neither Canada nor the US saw any changes in their country risk scores. The underlying trend in supply chain risk is an improving one, as a steady acceleration in growth in both Canada and the US will push 2018 regional growth up to its best rate since the end of the recession. Labor market resilience in both countries will be a key factor driving growth and inflation, while both central banks will continue to normalize monetary policy, taking advantage of the robust near-term outlook.

Dun & Bradstreet forecasts that growth in the United States will accelerate to 2.7% in 2018, with risks to the upside. The advanced estimate from the Bureau of Economic Analysis shows that real GDP advanced 2.6% seasonally-adjusted annual rate (SAAR) in Q4 2017, slightly below the 3.2% pace set in Q3, but strong enough to take calendar 2017 growth to 2.3%, in line with our forecasts. The fundamentals of the economy remain strong, and the US is going through its third longest expansion ever. Growth in 2018 will be driven by persistent and strong hiring in the labor market, steady spending by confident consumers, and increased investment from bullish businesses benefitting from the recent reduction in the corporate tax rate.

Our forecast of 3.2% global growth would be the strongest growth since the 2010 rebound from the recession.
Our forecast of an unemployment rate below 4% was realized in May, when the rate was driven to 3.9%. It marks the first time that unemployment is below 4% since 2000. Sub-par wage growth had been the one missing piece of the otherwise bright jobs story, but the January jobs report provided the most sanguine signal yet that wage growth is finally starting to accelerate. The lingering and persistent tightness of the labor market suggests that wage growth – and more importantly broader earnings growth – will continue to quicken gradually in 2018.



In Canada, 2017 marked a strong turning point for the economy: after years of underperformance, overall growth momentum strengthened as real GDP rose at an estimated annual pace of 3.1% – the strongest growth since 2011. Although the pace of growth in 2017 was uneven, several growth indicators turned notably higher, including industrial production, retail and wholesale trade, and total trade (exports and imports), while both business and consumer survey information climbed throughout the year. Additionally, the labor market showed resilience. Full-time employment growth momentum was strong in 2017, with gains the largest as a percentage of the total labor force since 2011. Due to a reduction in labor slack, total compensation also improved markedly through 2017. The gradual trend of an improving labor market will continue to empower consumption growth in 2018, albeit with limitations due to elevated household debt. In 2018, expect overall real GDP growth to slow compared with 2017’s pace, but still to rise by 2.4% amid ongoing changes in the composition of growth.

Western and Central Europe

For the third consecutive quarter, risk levels dropped in Western and Central Europe. Overall, the region saw four upgrades and one downgrade in the final quarter of 2017. Most notably, given the country’s size, Germany’s risk rating was revised upwards. While political risk remains somewhat higher than normal, given the ongoing coalition talks following the September election, macroeconomic indicators remain sound, while payments performance and business failure developments are still of outstanding quality.

The Netherlands also saw a risk rating upgrade as the economy expanded rapidly and as forward-looking indicators point to a solid growth rate in 2018 and 2019. At the same time, data from Altares, Dun & Bradstreet’s Rotterdam-based Worldwide Network partner, shows that the number of business failures fell significantly throughout 2017, while the average payment delay declined.

Elsewhere, in mid-February, the Instituto Nacional de Estatística issued a preliminary estimate of overall 2017 growth, leading us to upgrade our overall risk rating for Portugal. In line with our previous estimate, GDP growth reached 2.7% in 2017, up from 1.5% in 2016, and, given the strength of investment and domestic demand, we consider that growth is well enough balanced to warrant an upgrade.

Greece’s national statistics office (ELSTAT) announced it had revised its GDP compilation method in October, to make it compliant with the European System of National and Regional Accounts (ESA) 2010, and that it consequently updated GDP data. Its pace of economic expansion is likely to accelerate in 2019, due to ongoing improvement in labor market conditions, with a positive knock-on effect on household purchasing power.

In Italy, no single party or coalition was able to secure an outright Parliamentary majority in its March election. Instead, a vote split between the center-right alliance, the antiestablishment M5S, and the center left, including the ruling Democratic Party, resulted in a hung Parliament and a long road ahead to form a government. There is a broad consensus that part of the reason the ballot did not produce a clear winner is due to the so-called Rosatellum, a new electoral law that puts a premium on coalitions while making it hard for parties to win on their own. Overall, a transition coalition government with the objective of leading the country towards new elections could be the most likely scenario.

Eastern Europe and Central Asia

Our risk rating score for Eastern Europe and Central Asia saw a slight improvement in Q4 2017. However, the score continues to indicate that, on average, supply chain risk is greater than in any other global region, with the exception of Sub-Saharan Africa. The improvement was a result of the base effect of our one quartile upgrade for Uzbekistan (still in the “very high risk” category) at the end of Q3 in our Central Asia sub-region. This upgrade followed the government’s decision to float the currency in September, which suggests that President Shavkat Mirziyoyev is serious about economic reform.

Although country risk remains elevated for the region as a whole, the outlook is stable and there are indications of improvements ahead. The regional recovery continues to broaden, with the policy focus in the CIS (Commonwealth of Independent States, an alliance of former Soviet states) countries gradually shifting from crisis management to supporting adjustment and recovery. Higher commodity prices, firmer external demand, and strong investor appetite for emerging market assets helped to bolster regional activity in 2017 and should be supportive of growth in 2018. Overall, the trajectory of oil prices remains a crucial factor for the economic outlook: we expect the average annual oil price to strengthen in 2018, to $59.1 per barrel, compared with $54.4 per barrel in 2017.


The Asia-Pacific region’s risk score improved slightly, due primarily to the improvement in Singapore’s country risk indicator in December 2017. Dun & Bradstreet downgraded Singapore’s score during the soft patch in growth that Singapore was experiencing in 2015, but the city-state has successfully navigated that downturn after a good stretch of above-average real GDP growth, driven especially by electronics, diodes, and biomedical devices manufacturing, with port statistics underlining the recovery. The external trade environment has picked up to support the upgrade.

There were various challenges as well. In India, last-minute changes to rates for different products for the new Goods and Services Tax (GST) disrupted supply chains and held back tax collection as businesses struggled with bureaucratic and IT requirements. The new tax caused disruption to companies and supply chains into Q4, reduced government tax revenues and – by delaying tax rebates for exporters – caused acute working capital shortages among such firms. In December, we downgraded China’s supply environment outlook to “deteriorating” from “stable,” due to natural gas shortages. Chinese demand jumped in response to ambitious

targets to end the use of coal in north China’s power, industrial, and district heating systems. The increase in China’s demand for LNG delivered by tanker caused the global spot market to tighten considerably in 2017, with prices close to doubling from June to December. Despite two new LNG terminals (commissioned in 2017) bringing the national total to 16, Beijing and the northern economic hub around it have been short of gas amid a cold winter. China’s national energy administration took over the natural gas allocation system from national oil companies, granting household demand official priority. Diversions of gas from eastern, southern, and far-western provinces caused shortages and shutdowns for industrial users nationally, with gas diverted north by January.

There have been no major natural disasters that had any discernible impact on Dun & Bradstreet’s proprietary risk scores or economic forecasts since the cyclone season in Australasia and then Asia wound down in 2017. In Q1 2018, an earthquake in Taiwan exposed weaknesses in pre-1997 building codes as several high-rises collapsed from the shocks, but there was no disruption to industrial production. However, droughts continued in Sri Lanka and South Korea.

Middle East and North Africa

The Middle East and North Africa’s (MENA) regional risk score worsened for a third consecutive quarter in Q4 2017. The change in the risk relates to the base effects in the previous quarter of our one-quartile upgrade of Egypt in September and our three-quartile downgrade of Oman in August. In addition, we downgraded Lebanon’s risk rating by one quartile in November, before reversing the downgrade the following month. Downward pressure on the regional country risk ratings is coming from four sources. First, ongoing high levels of insecurity, particularly in Iraq, Libya, Syria, and Yemen. Second – and relatedly – the Islamic Cold War between Saudi Arabia and Iran. Third, the continuing diplomatic spat between the Quartet (Saudi Arabia, the UAE, Bahrain and Egypt) and Qatar. Fourth, the pressure that Washington is maintaining on Iran.

In relation to the statuses of the supply environment outlooks for the individual MENA countries, we made no high-level changes in Q4 2017, which means that just two countries in the region, Israel and the UAE, are in the ‘green’ category. Six countries (Iraq, Jordan, Lebanon, Libya, Syria and Yemen) are assigned a ‘red’ status, either because they border countries that are wracked by civil war or are experiencing civil war. However, in November, we upgraded the supply environment outlook trend for Syria to “improving,” as the war appears to be entering its final phase, and the areas under government control are now seeing a relatively booming business environment. We also upgraded the supply environment outlook for Qatar in October, from “deteriorating rapidly” to “deteriorating,” as the country adjusted more smoothly than anticipated to the economic boycott by the Quartet.

Latin America

Our Risk Score Index for Latin America rose as recent political developments complicated policymaking and create heightened uncertainty in the commercial environments in several countries. Moreover, with the region in an intense electoral cycle that extends to 2019, and which includes legislative and presidential votes in the largest economies, political risk will be a key factor in Latin America’s near-term outlook. In Costa Rica, a complex scandal involving influence-peddling and corruption severely damaged public confidence in the political class, and – perhaps more significantly – weakened its democracy, having implicated members of the judiciary. Together with Costa Rica’s still-troubling fiscal position, we downgraded our overall country risk rating, and adjusted the outlook from “stable” to “deteriorating.”

In a similar vein, political events led to Peru’s rating outlook being downgraded from “stable” to “deteriorating” as President Pedro Pablo Kuczynski pardoned the former president, Alberto Fujimori, who was serving a 25-year sentence for corruption and human rights abuses.

Kuczynski’s decision plunged Peru into its worst political crisis in recent years and provoked a spate of street protests, cabinet resignations, and Congressional losses, as well as international condemnation. With Kuczynski’s political capital vanishing, the outlook is uncertain.

The crisis in Venezuela is deepening, and we’ve assigned it a “rapidly deteriorating” outlook. Unsurprisingly, Maduro is expected to secure a second six-year term, despite the crippling economic crisis. Maduro has cracked down on political opponents, who have been imprisoned or banned. The decision to bring forward the election from December 2018 is widely seen as a move to capitalize on the disorganization of the opposition.

Conversely, and despite political tensions, Brazil’s rating outlook was elevated to “improving” from “stable” as the economic recovery accelerated to surpass initial forecasts. Consequently, we nudged our 2018 growth projection up to 2.2% following estimated growth of 1.0% in 2017. Historically low interest rates, higher real wages and rising employment will continue to support household demand. while external demand and commodity prices strengthen in coming quarters. Business confidence and expectations are also improving, but they are contained by the government’s inability to pass reforms that are crucial to reducing the fiscal debt. The medium-term outlook remains clouded by the failure to pass crucial pension reforms that would enable the government to adhere to the federal spending cap approved in December 2016. With elections in October, doubts that the president can push through the reforms are mounting, given the electorate’s disenchantment with the current political leaders and the need for cross-party support to advance the deeply unpopular pension reforms.

Overall, the region’s economic recovery will continue in 2018, underpinned by higher growth in Brazil and Argentina. Our outlook for Argentina is particularly sanguine and has led to an upgrade of its country risk rating – moving it out of our “very high risk” category – amid marked progress with fiscal reform. In December, several significant fiscal measures were approved by Congress, including the FY2018 budget, an agreement with provincial governments to reduce their deficits, tax reform, and unpopular – but crucial – pension reform. The government has already been cutting subsidies and, combined with the latest reforms, is seeking to reduce government spending further while encouraging investment by creating a more competitive commercial environment.

Sub-Saharan Africa

Supply chain risk improved marginally in Sub-Saharan Africa in the three months to December, although none of the regional countries were upgraded or downgraded. Underlying risks point to a slight improvement for supply chains in the near term, with better growth expected in the medium term. Faster global growth and higher commodity prices will be the main drivers of the acceleration in Sub-Saharan Africa’s growth in 2018. As the US Federal Reserve continues to raise rates in 2018, and global financial conditions tighten, regional economies may suffer from periods of capital outflow and weaker currencies. Meanwhile political risk remains elevated, and sporadic episodes of civil disorder could hamper the region’s return to faster growth. Despite the divergence in the major economies in the region, the average 2018 outlook for Sub-Saharan Africa remains dependent on our forecast for commodity prices. In particular, we forecast that the price of a barrel of Brent crude will average $74.4 in 2018, significantly higher than its 2017 average of $54.4, but still below the $100-plus prices seen during the previous period of high oil prices. The dynamics of global oil demand and supply, therefore, dictate that regional heavyweights like Angola and Nigeria will need to diversify away from their dependence on hydrocarbons and consider alternative growth strategies to increase their earnings.

Further exchange rate depreciation is anticipated in 2018, given subdued economic growth and weak national finances. The largest regional economy, South Africa, finally saw an end to months of intense political in-fighting that had been a significant weight on business confidence and global investor sentiment in Q4. In a dramatic end to his beleaguered tenure, President Jacob Zuma finally submitted his resignation in February. Consumer and business confidence remains low, investor sentiment is downbeat, and the country’s creditworthiness is being questioned. Economic conditions could begin to improve in 2018: slightly higher prices for South Africa’s major export commodities, alongside higher mining sector output, as well as a recovery in agriculture and improved electricity supplies, will create some positive drivers behind the country’s short-term economic outlook, but growth will remain fragile.

The Nigerian economy has emerged from recession but remains burdened by stretched public finances, liquidity concerns, capital controls, and policy uncertainty. The government is pursuing investment for infrastructure and non-oil business activity, but its spending plans will be restricted by the fiscal deficit and a large debt-servicing burden. The government has managed to push through some pro-business reforms in recent years, which has put it among the major business reformers in the World Bank’s latest Doing Business 2018 report. Political instability and security concerns will continue to adversely affect the domestic political scene, creating policy inertia and undermining economic growth. Ethiopia is among the fastest growing economies in Africa, and international firms continue to take up positions to gain a foothold in one of the continent’s most promising markets and production bases. The government is investing heavily in transport and power infrastructure and in export-oriented industrial parks. These include projects that seek to improve connectivity and access to sea ports in East Africa. The government has lifted a state of emergency that was imposed in late 2016 in response to civil unrest. There remains a risk of renewed disruptive protests and demonstrations, and drought conditions in some parts of the country are adding to a sense of social instability.


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