ECR survey results: Spain the world’s worst performer in Q3 as eurozone continues to decline

Matthew Turner
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The eurozone became even riskier in Q3 2012, according to the results of Euromoney’s Country Risk (ECR) survey. Spain, the world’s worst performer in the survey during that period, plummeted 14 places, while Italy and Slovenia registered increased risk too. Core economies Germany and France also got riskier in Q3, according to economists. However, there were signs that the worst might be over for the eurozone as a whole, with its average score deterioration slowing to 0.5 points on average in Q3, less than a third of the previous quarter’s fall.

Spain saw the largest increase in risk in both the eurozone and the world in the ECR survey for the period June to September 2012, as solvency fears, a crisis budget and a make-or-break audit on the domestic banking system played into experts’ increased perceptions of risk.

The country slipped 14 places in Q3, as its overall ECR score deteriorated by four points out of 100 to 54.9. Spain is now ranked third amongst the zone’s riskiest sovereigns, behind Greece and Portugal. 

Source: Euromoney Country Risk. All scores as of October 1, 2012. Score guide: 100=safest, 0= riskiest. Tiers: 1=safest, 5=riskiest. 

The data show that Spain suffered from a much sharper score decline this quarter, from the levels recorded in Q2, when it fell by just three places. Spain also performed far worse in the Q3 survey than fellow eurozone struggler Italy, whose score fell by just one point (out of 100), leaving the country ranked 45th-safest sovereign globally.

Although the government’s recently agreed crisis budget has brought some positive steps, including greater efforts by the government to impose itself on local authorities in the country’s many autonomous regions, analysts remain cautious about the prospects for economic recovery. Spain’s economy is now expected to contract by 3.7% in 2012, according to the IMF.

The crisis has forced ECR analysts participating in the survey to lower their growth forecasts for the country, which in turn has caused a downward pressure on government financing and public debt.

These trends are reflected in ECR data, which shows Spain’s economic risk score saw a sharp nominal decline in Q3. Spain’s economic assessment scores fell by -0.8 points during the period, after the country received reduced scores across most of the survey’s economic indicators, including government finances, economic outlook and bank stability.

A recent report by survey contributors ABN Amro states: “The government has based its budget on rather optimistic projections for the Spanish economy. It expects GDP to contract by merely 0.5% in 2013, while we think a much sharper decline is more likely – our current estimate is -1.9%. Consequently, it seems very likely that the government will miss its deficit target next year, unless it implements further austerity measures.”

ECR analysts appear to be most concerned about the country’s prospects for growth and the fragility of Spain’s banking sector in Q3. Spain’s banking-stability indicator saw the largest deterioration among the country’s economic sub-factor scores, falling by 0.7 points to 3.6 Q/Q, while the country’s economic outlook indicator fell by 0.5 points to 3.1 in Q3 2012.

Signs of stabilization elsewhere in periphery

Excluding Spain, a number of peripheral eurozone economies registered a smaller deterioration in Q3 than in the previous quarter, while several became safer – a sign that concerted efforts by the European Central Bank and national governments to ease credit conditions in afflicted states might be beginning to have a positive effect.

However, in absolute terms, risk is still increasing across much of the zone: Italy fell four places to 45th, while Slovenia (34) and Cyprus (38) each slipped three places in the rankings. 


Italy’s debt problems are reflected in ECR data, which shows that the country’s overall ECR score deteriorated further this quarter, falling by 1.1 points. The score decline is lower than the 4.3 point deterioration which took place in Q2 2012.

Since then, Italy has managed to shrug off suggestions it might require a sovereign bailout, after the country’s borrowing costs receded from July onwards, providing a window for Italy to issue €2.25 billion in sovereign bonds in October.

However, the sovereign continues to be perceived as high risk by analysts participating in the ECR survey. Italy’s falling position in the third tier of the ECR rankings has made it the riskiest G-10 nation and the fifth-riskiest economy in the eurozone, with a lower country risk score than South Africa, Iceland and Mexico.

Ireland’s reforms progress

Ireland saw an improvement in its overall ECR score in Q3, fostering hopes that the worst of the country’s crippling economic crisis might now be behind it. Ireland’s return to the bond market in July is thought to have spurred investor confidence in the country after it raised more than €5 billion, while continuing to make progress on its EU-IMF programme commitments.