17 Sep 2021
Posted in Business Fundamentals
Global risk decreases a tad in Q2 2021 but remains at an elevated level, says GlobalData
While overall global risk has been decreased slightly by the progress of COVID-19 vaccination programs and reopening initiatives, risk levels are still high due to the resurgence of new COVID-19 variants and geopolitical tensions, according to leading data and analytics company GlobalData.
GlobalData’s report, ‘Global Risk Report Quarterly Update – Q2 2021’, finds that global risk decreased marginally to 42.74 out of 100 from 43.53 in Q1 2021.
Gargi Rao, Business Fundamentals Analyst at GlobalData, comments: “While this score is an improvement, it is much higher than the pre-pandemic level of 41.1 in Q4 2019. The implementation of prolonged fiscal policies, along with the procurement and distribution of COVID-19 vaccines across the globe, will be the drivers to reduce risk. Global risk depends on how governments will strategically overcome economic problems in terms of mounting public debts, fiscal deficits and reduce overall political risk.”
Europe – Protests, floods and fiscal concerns looms large
Europe remained the region with the lowest risk in Q2 2021, with a marginal decline in risk score to reach 33.7 by Q2 2021.
Protests against COVID-19 restrictions and rising radicalization increased political risk in Europe. This was not helped by July’s catastrophic floods, which caused deaths and widespread damage in Germany, Belgium, the Netherlands, Luxembourg and Switzerland.
Rao says: “The July 2021 floods resulted in extreme human and economic loss. Rapid changes to climate may indicate such flooding to occur frequently. Governments have pumped in immediate aid for flood victims, however, a strategic framework for disaster preparedness and risk management is required.”
Further, new stimulus measures are widening the deficit and further adding to the already high debt burden in Europe.
Rao comments: “Massive stimulus packages were announced by Italy worth 60.9% of its GDP as of September 2021, to support businesses, tourism sector workers, and boost cash distributions to the vulnerable. High borrowing rates by the government pushed up public debt and may deter growth prospects.”
Switzerland, Denmark, Sweden, Norway, Germany, and Finland continue to remain in the list of top 15 nations with the least risk in Q2 2021.
Rao notes: “Lowest risk countries were mainly from European and Asia Pacific regions in Q2 2021. On the other hand, African countries continued to remain in the high risk category in Q2 2021.”
Asia-Pacific – Geopolitical tensions among countries to have deeper impact
The Asia-Pacific region’s risk score decreased marginally in Q2 2021 over the previous quarter. However, rising geopolitical tensions – including the Taliban’s takeover of Afghanistan, a military coup in Myanmar, ongoing South China Sea conflicts, and emergence of new variants of COVID-19 – pose risk.
Rao adds: “The Taliban takeover has aggravated multiple crises that already existed leading to thousands fleeing the country, freezing of funds from multilateral organizations and halting of key development projects, which is expected to have a grave impact on the Afghan economy. GlobalData projects the country’s real GDP to contract within the range of 12.4%-22.3% in 2021.”
Gargi also notes that the recent ratification of RCEP by Japan in June 2021, alongside China and South Korea, is set to boost economic integration and trade in the region.
According to GlobalData research, Singapore was the lowest-risk nation in Q2 2021.
Rao comments: “Singapore had very timely policies to combat COVID-19, which has benefitted the country well in terms of economic recovery.”
Americas – Vulnerability of Latin American countries continues
The Americas region was the second highest in terms of risk worldwide, with a score of 46.7 out of 100 in Q2 2021. Mexico, Chile, Canada, and the US registered strong recoveries in Q2 2021, however, rising discontent against the government; continuing political unrest in Venezuela, Haiti and Nicaragua; and Guerilla group activities in countries such as Colombia and Ecuador have had an impact.
Rao adds: “The US experienced a surge in employment as reopening initiatives, along with rising vaccination rates, boosted the confidence of the business community. Meanwhile, Latin American countries such as Argentina witnessed stagflation, while Brazil saw a resurgence of COVID-19 cases along with reinstatement of mobility restrictions.”
Middle East and Africa – Social conflict along with geopolitical turmoil weighs down growth prospects
The Middle East and Africa (MEA) region witnessed highest risk among all regions in Q2 2021, at 50.42 in Q2 2021. Communal unrest in poorer areas has resulted in an uneven vaccination rollout and volatile food prices.
Rao continues: “Economic recovery has been uneven among MEA countries. Those that are rich in oil resources have been less impacted due to the rebound of global demand, however, renewed conflict between Israel and Palestine – along with political upheaval in Iraq and Lebanon – may cloud any recovery.”
Libya, Mozambique, and Yemen were the countries regarded by GlobalData to have the highest risk in the MEA region.
Rao adds: “The Saudi-led coalition war in Yemen has been aggravated by the COVID-19 outbreak, mainly through economic and humanitarian challenges. On the other hand, Libya needs to reunify its fragmented economy to sustain economic growth in the medium-term.”