Country Risk: Which countries are most vulnerable to a global slowdown?

Annual global economic growth peaked in 2017-2018 and we forecast a soft landing of the world economy in 2019 and 2020. Against this backdrop, we studied the main transmission routes of a global slowdown to individual economies and identified countries that are the most vulnerable along three channels: external financing, trade and commodity prices.

China´s new stimulus

On 5 March 2019, at the key annual session of the National People’s Congress, China’s top legislature lowered the country’s economic growth target for 2019 to 6.0%-6.5%. It also announced a significant fiscal package of RMB4.15tn (5% GDP), including tax and fee cuts (RMB2tn) and infrastructure spending (RMB2.15tn).

The sputtering German – French growth engine

In the last quarter of 2018, both the German and French economies observed a significant deceleration of growth.

US corporate leverage is probably underestimated

From scoping (hidden debt) or for cyclical reasons, we believe that corporate spreads are undervalued today, and that unfortunate events (rapid downturn, market defaults) could end up pushing up spread by 70-190bps, by sheer realization by market actors of intrinsic risks in that segment.

China’s Belt & Road Initiative

Born in late 2013, the Belt and Road Initiative (BRI) is a development and cooperation strategy launched by China. The project aims at promoting greater cooperation between China and partner countries on matters such as trade, financing, investment and culture. 

The paradox of inclusive inequality

The now popular narrative of ever-widening inequality is only telling half of the story. It neglects the huge strides made towards better participation from a global perspective as well as the improvements within many developing countries. 1.1 billion people form the global wealth middle class today, and global concentration of wealth fell below 80%.

Where the smart savers live

Savers in the eurozone are caught between a rock and a hard place: zero interest rates and rising inflation. Hence, investment strategy matters. The implicit return on households’ financial assets – referring to the total sum of gains in value and investment income in relation to portfolios – is an intriguing gauge to visualize the striking differences in saving behaviors between eurozone countries. Some prefer safety and, as a consequence, have to work hard to increase their wealth; others accept higher risks – and see the markets do the heavy-lifting for them. Our visual guide shows what separates smart savers form the hard savers and where they live.

Global Economic Outlook 2019

2018 saw strong growth while leading to a maximum of uncertainty. World growth in 2018 reached again a high level of +3.1%. Yet it nurtured uncertainties on the possibility of a trade war, non-viable US and European fiscal policies, the Fed’s too high assertiveness, emerging markets’ resilience, the multiplication of political risks and a potential burst of the global credit bubble. 2019 will be a denouement year on all these thorny issues. It should lead to a soft landing of the world economy.

The View: Global Insolvencies Outlook

We see business insolvencies to rise for the third consecutive year in 2019 (+6%). The softening economic momentum, coupled by the global tightening of financing conditions, will drive up insolvencies in a majority of countries.