SACE, which together with SIMEST is the Export and Internationalization Group of the CDP Group, publishes the new edition of the Risk Map and presents the expected scenario in which Italian companies will move in Focus On "Map of Risks 2018: Adelante with juicio ".
The picture outlined by the new study is that of an overall improvement in the levels of risk caused by a global growth in recovery, with positive effects on the trend of international trade and on the Italian economy, in particular on the export in the 2017 unexpected leap. However, some elements of instability remain: high levels of indebtedness and uncertainty on the recovery of the commodity cycle weigh heavily on emerging markets, while instability and phenomena of political violence spread to new areas of the globe. Italian companies will therefore operate in an improving environment, which remains fragile and will have to move with caution, diversifying geographies and providing risk mitigation tools.
“2017 was a positive year for the global economy which also pushed the recovery of international trade - explains Beniamino Quintieri, President of SACE -. We expect 2018 to continue to grow, but not without risks. It will be important to closely monitor exogenous variables such as the evolution of United States relations with Russia, the Middle East and North Korea, the choices of the Chinese government and the results of some important electoral rounds that could destabilize regional balances in Latin America or in Africa. Export and internationalization will continue to play a key role in our economy, but recent experience has taught us not to underestimate any indicator. It is therefore becoming increasingly important for companies to be able to recognize and assess risks, to have a good diversification of their export destination markets and to use the hedging instruments made available by the SACE SIMEST Hub ".
Goldilocks economy: like in the 2007?
The global growth was consolidated during 2017 (+ 3,6% expected), with the emerging economies to drive (+ 4,6%) and a marked improvement also in advanced markets (+ 2,2%). The favorable economic situation was reflected in the dynamics of international trade, which began to grow at a rapid pace (+ 4,5% in the first 10 months of the 2017) after the slowdown observed in the post-crisis period. Positive effects have not been slow to show up for Italy, particularly for our exports (+ 7,8% in the first 11 months of 2017).
Ten years after the global financial crisis, some indicators seem to recall the positive pre-crisis dynamics: robust growth, inflation under control, favorable financial conditions, low market volatility and "inversion" of the commodity cycle. The holding of the world economy under these conditions, however, would only take place in the case of moderate growth, neither too strong nor too cautious. Features that refer to the so-called scenario from Goldilocks economy, from the northern fairy tale where the young Riccioli d'Oro claims to prefer the porridge of the right temperature, neither too hot nor too cold.
It is necessary, therefore, not to underestimate some latent risks:
- high levels of indebtedness, especially in emerging countries
- volatility of commodity prices, which affects the stability of the economies of the exporting countries
- widespread political instability.
Credit risk indices improve
Looking at the Map of SACE, a general improvement in the risk of non-payment is evident. On 198 countries analyzed, 32 are those that have improved their risk category SACE and 156 [1] those that remained stable (in total these represent about 91% of Italian exports, or about 380 billion). While the economies that have worsened their risk category are 10 and represent 38,5 billions of euros of exports and weigh for 9%.
[1] Of the 156 countries left in their SACE risk categories, 57 have unchanged indicator, 50 slightly improved and 49 slightly worse.
The most significant upgrades involve in particular the advanced (4 points on average): Portugal, Iceland, Slovenia show a positive variation above average. Emerging geographies include the upgrades of Egypt, Russia, Brazil, India and Argentina (the latter at high levels of risk). On the other hand, China is worsening, due to concerns about the high level of indebtedness, and South Africa, characterized by a still stagnant economy and weighing on the political uncertainty linked to the appointment of the new president.
High levels of indebtedness remain. The long-awaited deleveraging process has not yet set in motion: the global debt stock has continued to increase during the year and in September 2017 stood at 233 thousand billion dollars (+ 7,4% compared to the end of 2016), of which 61 thousand in the emerging countries and 172 thousand in the advanced. Despite the increase in absolute value, the widespread economic growth contributed to the fourth quarterly consecutive reduction in the global debt / GDP ratio, which in September of 2017 reached 318%, three percentage points less than the historical record of 2016. Since the financial crisis, the debt incurred by companies in emerging markets has more than tripled and, in September, 2017 has exceeded 28 thousand billion dollars. This growth in the absence of a favorable economic situation could cause difficulties in repaying debts by already indebted companies, with repercussions on suppliers, including foreign ones, and on banking institutions.
Is the "commodity cycle" reversed? The 2017 has shown a positive year for many raw materials and the forecasts for the current year are generally optimistic. This can already partly be seen in an attenuation of the SACE risk indices in several emerging markets heavily dependent on commodities. These include a sharp decline in the risk of non-payment by sovereign counterparts: Iraq, Argentina, Indonesia, Saudi Arabia, Russia, Brazil and the United Arab Emirates. There are, however, exceptions such as Venezuela, still shaken by internal crises, and Mongolia. Among the main factors that will influence the prices of commodities are the evolution of the shale oil industry in the United States and the increasingly important role of China as a consumer of industrial raw materials. Regarding oil prices (Brent increased by 50% in the second half of the 2017), SACE has adopted its own price scenario to assess the stability of the markets, trying to mitigate the impact of short-term fluctuations : our expectations are positioned between 54 and 62 dollars per barrel for Brent.
Attention to political risks
In the scenario for the 2018 highlighted by the Map also the political risks register an improvement at the global level, in particular the risk of confiscation and expropriation (which passes from 52 to 50) and non-transfer and convertibility (which improves from 47 to 46 ). These improvements partly reflect the economic and financial progress of the countries that have improved their attractiveness towards foreign investors (such as Colombia and Vietnam), partly to the gradual rise in the price of crude which has had a positive impact on some oil economies (such as Nigeria, Azerbaijan, Uzbekistan).
The risk of political violence is the only case that shows a slight worsening at a global level, from 44 to 45. There are also more limited areas where these risks remain critical (Afghanistan, Libya, Pakistan, Venezuela). The Middle East and North Africa (Mena) and sub-Saharan Africa remain the most unstable areas with a risk average of 58 / 100 and 56 / 100 respectively. In the Mena area, the existing conflicts (Syria, Yemen) have added new potential outbreaks (Qatar, Lebanon, Iran), while in Sub-Saharan Africa the continent's high growth potential suffers the negative effects of critical situations now chronically ( Central African Republic, Democratic Republic of the Congo, South Sudan) and new terrorist threats. The opening of the electoral cycle in Latin America (Brazil, Colombia, Mexico and Venezuela) could lead to scenarios of instability with the rise of populist forces.
The new trend, launched in 2017 and foreseeable during this year, concerns the increase in the risk of political violence in some countries considered "unsuspected". In fact, risk indicators show an increase in episodes of political violence in countries not characterized by systematic conflicts, but where the presence of religious, social and political tensions have led to the deterioration of the level of security (this is the case of the Philippines, Bangladesh and of India, but also of Armenia, Azerbaijan, Serbia and Kosovo).
IN DEPTH:
SACE, controlled at 100% by Cassa depositi e prestiti, offers export credit services, credit insurance, protection of foreign investments, financial guarantees, sureties and factoring. With € 87 billion transactions insured in 198 countries, SACE supports the competitiveness of companies in Italy and abroad, ensuring more stable cash flows and transforming the risks of insolvency of companies into development opportunities.
SIMEST, controlled at 76% by SACE and participated by leading Italian banks and business associations, intervenes in all phases of the Italian companies' foreign development, with subsidized loans to support internationalization, with contributions to interest in support of exports and through the acquisition of investments.
Together with SIMEST, SACE is the Export and Internationalization of the CDP Group.