ECR Survey Results Q2 2012: Global risk ratchets up
Country risk analysts saw increased risk in all of the world’s main economic/geographical regions during the first six months of 2012, according to the Q2 2012 results of Euromoney’s Country Risk Survey.
Sentiment deteriorated not only in Europe – led by the eurozone – but also in Africa, Central and Eastern Europe, the Middle East, and – to a lesser extent – North America, Latin America and Asia. In total, 108 countries out of the 186 in the survey became riskier during the first half of 2012.
In the latest results of Euromoney’s Country Risk Survey, participating economists and country risk analysts registered further deterioration in perceptions of sovereign risk across all main global regions this year. In total, 108 of the 186 countries in the survey have become riskier in the first half of the year (ie have deteriorating ECR scores), with just 56 becoming safer (with improving scores; see map).
The eurozone saw the largest deterioration of any region, falling by an average of 1.8 points in the survey. However, the fall was more moderate than the 4.3 point-drop the region experienced during the second half of 2011.
Within the G10, seven countries (Italy, France, the Netherlands, Japan, UK, US and Canada) have seen increased risk during the last six months. Three countries (Sweden, Switzerland and Belgium) have seen an improvement in their risk profiles during the period, underpinned by amelioration in their survey assessments for economic risk. Switzerland remains the safest G10 sovereign, with a score of 88.8, second only to Norway – the safest sovereign in the ECR survey.
Italy remains the riskiest G10 sovereign (on 58.9 points). Italy’s ECR score is in free fall, losing a further 4.3 points since January – after a deterioration of 7.4 points in H2 2011 – as economists’ confidence in the sovereign’s ability to withstand the eurozone crisis has further diminished.
Other peripheral eurozone countries (not only Spain, Portugal and Ireland, but also Cyprus, Estonia, Malta and Slovenia) have all succumbed to increased risk (lower ECR scores) during the period. Greece has seen its score improve marginally after the recent elections, but it remains far adrift of other euro participants on a score of 34.4, half the eurozone average.
The US and Canada have exhibited more resilience than their European G10 counterparts, but for contrasting reasons. The US score has been negatively affected by declining assessment by economists in the survey’s political component, in the run-up to the presidential election in November. The US retains a strong and stable overall political assessment, but there is some anxiety creeping into contributors’ perceptions about the future direction of policy in light of the uncertain outcome. For Canada, the economy is more of a concern.
The Brics, CEE and Western Europe regions have also seen substantial downgrades in their sovereign risk outlook from economists, with each deteriorating by more than one point out of 100 since the start of 2012.
The country with the largest ECR score shift is conflict-riven Syria, a fall of 6.8 points to 19.4.
Seven of the 20 countries that have declined the most in ECR’s rankings are from sub-Saharan Africa. Three more (Egypt, Syria and Lebanon) are based in the Middle East/North Africa and three (Hungary, Slovenia and Cyprus) are from Central and Eastern Europe. Sri Lanka is Asia’s biggest faller.
Led by Sri Lanka, the majority of sovereigns in Asia succumbed to increased risk during the first half of 2012 – driven by a mix of economic, political and structural concerns, and in particular the increased risks enveloping the region’s powerhouses: India and China. Confidence in Brunei, Thailand and one or two countries in the Caucasus has improved nevertheless.
With an average ECR score of 47.3, the Central and Eastern Europe region is still safer than Latin America (averaging 45.1), but the two regions appear to be on a convergence path, with their points-differential narrowing from 3.1 in January to just 2.3, as confidence in the CEE region is declining at a faster pace.
Only two regions of the world have seen an improvement in their average risk scores during the last six months: Australasia and the Caribbean. But in both cases the results have been skewed by just a handful of countries.
Australia and New Zealand have suffered a similar fate to their G10 compatriots, with the former perceived to be more exposed to a commodity price downturn and domestic economic weaknesses.