The world’s top economic risk hotspots


By Sabine Vollmer

Geopolitical unrest, currency fluctuations, and declining commodity prices are projected to weaken growth in emerging and developing economies in 2015, according to the International Monetary Fund’s World Economic Outlook.

Advanced economies are also facing risks, including aging populations and sluggish advances in productivity, but many are benefiting from the sharp decline in oil prices, low interest rates, and a weaker euro. 

“Large movements in relative prices, whether exchange rates or the price of oil, create winners and losers,” Olivier Blanchard, IMF economic counselor and director of research, said in a statement.

Based on risk-rating categories such as public debt, currency, banking, politics, and economic structure, The Economist Intelligence Unit highlighted four top economic risk hotspots among the countries the IMF identified as losers:

  • Brazil has low external debt, a solid tax base, and deep capital markets. But measures to rein in a high fiscal deficit, corruption scandals, and declining prices for commodity exports are hurting an already weak economy. Brazil’s GDP is projected to contract 1% in 2015 then rise 1% in 2016.
  • Russia is facing international sanctions and capital flight because of the conflict in Ukraine. At the same time, a sharp decline in oil prices is cutting into its revenue from energy exports. The combination of risks caused the Russian ruble’s value to drop more than 40% last year. Russia’s economy is projected to contract 3.8% in 2015 and 1.1% in 2016.
  • Greece’s recession bottomed out after five years, and the country’s GDP is projected to increase 2.5% in 2015 and 3.7% in 2016. But outsize public debt (173% of GDP at the end of 2014) poses a high risk of default. If negotiations between Greece’s newly elected government and creditors remain contentious, the risk of a bank run will rise.
  • Italy is also emerging from a prolonged recession. The country’s GDP is projected to increase 0.5% in 2015 and 1.1% in 2016. But economic growth prospects are weak because labour costs per unit are high, and Italy’s companies produce mostly medium- rather than high-technology goods. Also, non-performing bank loans are on the rise, and public debt is expected to reach 136% of GDP in 2015.

Worldwide, the IMF projected economic growth at 3.5% this year, up from 3.4% in 2014, and at 3.8% in 2016. But assessments by geographic region show uneven growth:

US and Canada. GDP in the US is projected to increase 3.1% in 2015 and another 3.1% in 2016, which is higher than the 2.4% rise in GDP projected across advanced economies each year. Lower energy prices; tame inflation; strengthened household, corporate, and bank balance sheets; and an improving housing market are expected to offset a stronger dollar and drive robust US economic growth. Economic growth in Canada is projected at 2.2% in 2015 and 2% in 2016, considered solid but with downside risks because the rapid fall in oil prices could further weaken investment in Canada’s important energy sector and lower employment growth.
 
Europe. Lower energy costs, a larger-than-expected European Central Bank stimulus, and reawakening private investment are supporting modest economic growth projections in advanced European countries, where GDP is likely to rise 1.7% in 2015 and 1.8% in 2016. Emerging and developing countries in eastern and central Europe are projected to see GDP rise 2.9% in 2015 and 3.2% in 2016. The possibility of stagnation and persistently low inflation in the euro zone remain risks. Also, the debt burden and unemployment remain high in many European countries.

Asia and Pacific. Despite slowdowns in China and Japan and stagnant growth in South Korea, the region remains the world’s economic growth leader with projected GDP growth of 5.6% in 2015 and 5.5% in 2016. Recent policy reforms and lower oil prices are expected to give India’s economy a boost. GDP growth is expected at 7.5% this year and next, about one percentage point higher than China’s projected economic growth. The downturn in the commodity cycle continues to hit Australia’s economy. But a supportive monetary policy and a somewhat weaker exchange rate get economic growth to a projected 2.8% in 2015 and 3.2% in 2016.

Latin America and the Caribbean. Shrinking economies and slowing growth are weighing on the region. Low oil prices are pummeling energy exporters Colombia and Venezuela. The GDP for South America is projected to contract 0.2% in 2015 and grow 1.3% in 2016. Tourism-dependent economies in the Caribbean still have a high debt burden and financial sector problems, but visitors are starting to return. Central America and Mexico are benefiting from lower oil prices and the robust recovery in the US. In Central America, GDP growth is projected at 4.2% in 2015 and 4.3% in 2016. The Mexican economy is expected to grow 3% in 2015 and 3.3% in 2016.

Commonwealth of Independent States. International sanctions, geopolitical conflict, depreciation of the ruble, and sharply lower oil prices are hurting Russia and neighbouring economies. GDP in the region is projected to contract 2.6% in 2015 and grow 0.3% in 2016. Ukraine’s economy is expected to contract 5.5% in 2015 and then grow 2% in 2016. The economies of Armenia and Belarus are projected to go into recession in 2015.

The Middle East, North Africa, Afghanistan, and Pakistan. Oil exporters in the region are expected to continue to suffer losses because oil prices are likely to remain volatile. Growth projections for Saudi Arabia and Iran have been lowered. GDP growth for the oil-exporting economies in the region is expected at 2.4% in 2015 and 3.5% in 2016. Oil-importing economies in the region are experiencing some improvement despite regional conflicts and fallout from weak growth in the euro zone and a strengthening US dollar. GDP growth in the oil-importing economies is projected at 4% in 2015 and 4.4% in 2016.

Sub-Saharan Africa. Declining commodity prices, mounting domestic security threats, and the effects of the Ebola epidemic are expected to slow economic growth in the region. GDP growth among oil exporters is projected to slow to 4.5% in 2015, from 5.8% last year, and then rise to 5.2% in 2016. Middle-income economies in the region, such as South Africa, are expected to see modest growth of 3.2% in 2015 and 3.6% in 2016. The least developed economies in the region are projected to grow 6.3% in 2015 and 6.9% in 2016.

Related CGMA Magazine content:

6 Key Considerations for Success in 2015”: Continuing geopolitical instability, coupled with concern about over-regulation, means CEOs are less optimistic about global economic growth than they were in 2014, according to a PwC survey. The research also reveals widespread concern about the availability of key skills.

The 5 Biggest Global Business Risks”: Business leaders’ attention is shifting to geopolitical tensions and societal instability, which dominate the World Economic Forum’s 2015 list of top global risks. Find out how multinationals are likely to prepare for these emerging risks.

Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.

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