Russian sanctions a ‘double edged sword’ as investment risk in Europe rises by significant 2.6% between Q2 and Q3 2022, says GlobalData

The Russia-Ukraine war has had a severe economic impact on the Europe region, significantly increasing the risk to investors, according to GlobalData. Research by the leading data and analytics company has revealed that Europe’s level of investment risk rose by 2.6% in one quarter.

The research was conducted as part of GlobalData’s ‘Global Risk Report Quarterly Update – Q3 2022’ report, which outlines its Country Risk Index (GCRI). This model analyses a number of economic factors and calculates the amount of risk an investor accepts when doing business in each country and region worldwide. This is then represented by an overall ‘score’. Europe’s risk score was 32.6 in Q2 and this rose to 33.4 in Q3.

Puja Tiwari, Economic Research Analyst at GlobalData, comments: “The double-edged sword of EU sanctions on Russia is cutting both ways. While the measures are weakening strategic sectors of the Russian economy, they are also slowing Europe’s economy as countries are struggling to find a replacement for Russian gas. With Europe facing a severe energy crisis, and with governments implementing stimulus measures to lessen the impact of said crisis, European economies are expected to face high levels of government debt, slowdown in economic growth, and possibly a recession to boot.”

On the plus side, GlobalData highlights that several European countries (Switzerland, Denmark, Sweden, Norway, Finland, and Germany) are on the list of the top 15 lowest-risk countries worldwide. Meanwhile, no European countries feature on the top 15 highest-risk countries.

Tiwari continues: “Europe continued to be the lowest-risk region in Q3 2022, supported by various enacted and announced measures. For example, the Danish Energy Agency announced a temporary price ceiling on surplus heat at DKK93 per gigajoules (GJ), which is expected to come into force in January 2023. Meanwhile, Germany’s parliament approved a EUR200 billion ($205.2 billion) proposal that aims to tackle soaring energy prices and ease the impact of the energy crisis on industries and households. The fund is expected to last until 2024, and will finance energy price caps and subsidies. In Finland, the government approved a rescue package amounting to EUR10 billion ($10.3 billion) for energy companies that are facing a cash crunch due to the volatile nature of markets following the outbreak of the Russia-Ukraine war.”

Looking more broadly, GlobalData’s report highlights that global risk increased from 44 out of 100 in Q2 2022 to 44.9 in Q3 2022.

Tiwari adds: “The major causes of risk worldwide include the price rises as a result of the Russia-Ukraine war and sanctions on Russia, the energy crisis in Europe, a slowdown in China’s growth, aggressive interest rate hikes by central banks, depreciating currencies, and a crashing stock market.

“While governments of major economies are undertaking various fiscal measures to deal with the rising prices, this will weigh on already strained government finances. Moreover, with several economies tightening monetary policy, the increasing borrowing costs will remain another challenge moving into Q4 and beyond.”

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