More than five years on from the credit crunch that shook the world to its core, tail risks continue to undermine investor returns, according to the latest quarterly results of Euromoney’s Country Risk Survey.
Some 101 of the 186 countries surveyed have succumbed to lower Euromoney Country Risk (ECR) scores (increased risk) since June, which, with 17 unchanged, leaves just 68 safer, according to the views of global economists and other country-risk experts surveyed during the third quarter.
Weighing down the scores is a range of worries, from the US federal shutdown and looming debt-ceiling deadline to monetary tapering and Europe’s fiscal problems.
The picture changes on a year-on-year basis, with the balance still tilting in favour of higher scores than lower ones. However, the shake-out that occurred in the wake of the collapse of Lehman Brothers in September 2008 has still left the majority of sovereigns – some 75% in all – with vastly increased risk levels than before the crisis; in the case of the eurozone periphery - Cyprus, Greece, Ireland, Italy, Portugal and Spain – an astonishing 25 to 50 points each.
Countries affected by the Arab Spring and other instabilities – perhaps threatened by emerging markets’ risk aversion, or interconnected to Europe’s weaknesses via trade and capital flows – have seen their scores downgraded even further in Q3.
The US political problems slowing growth and risking a payments default have not only weakened the US score but also undermined countries susceptible to capital outflow with large budget and current-account imbalances.