Recession Pushes U.K. And U.S. Economic Risk to Same Level as Brazil.
Other countries with an economic risk rating of 4 include Panama, Romania, Morocco, Brazil and Algeria. Countries with an economic rating of 3 include Chile, Australia, Libya and Germany.
The ongoing credit crunch, which is pulling much of the world into the depths of recession, has undermined economic risk levels in both the United Kingdom and the United States, according to London-based broker Jardine Lloyd Thompson.
This time last year the U.K. and U.S. had the highest ratings for economic risk,? Elizabeth Stephens, political risk analyst at JLT and one of the authors of the world risk review, told BestWeek Europe. ?Now that?s changed a great deal.?
JLT's world risk review rates countries according to a number of different factors, which include political violence such as terrorism, investment environment, such as legal and regulatory risk as well as the chances of expropriation (the danger of a government taking over or nationalizing a company) and trading environment, such as country economic risk.
Ratings for the latter are the focus of the latest review, which currently has the United States with a rating of 4 out of a scale of 1 to 10, with 1 being a low level of economic risk and 10 the highest level. The United Kingdom had a rating of 3. Both countries were previously rated at one or two in past editions of the world risk review.
Other countries with an economic risk rating of 4 include Panama, Romania, Morocco, Brazil and Algeria. Countries with an economic rating of 3 include Chile, Australia, Libya and Germany.
According to Stephens, the credit crunch will continue into 2009, and although areas like Asia will perform better than the United States due to the low levels personal debt in the region, it will take some time for a recovery to occur.
Moreover, the world risk review makes clear that the situation in the United States might get worse, as it claims that the mortgage bailout of $700 billion organized by the head of the U.S. Treasury Department, Hank Paulson, might not be enough.
According to the review, mortgages represent only half of the U.S. consumer debt and that as a result, the $700 billion total required to stabilize the situation will probably rise in 2009. And the review points out that with the big three U.S. car manufacturers now getting into the picture and asking to be bailed out themselves, there is a temptation to ask just at what point will the bailouts by the U.S. government end.
Another area of the world that the review highlights as being in trouble is Dubai. The emirate, which has been leading a huge construction, insurance and economic boom in the Persian Gulf, is apparently the latest victim of the credit crunch.
According to the review, Dubai has seen investment in its real estate and banking sectors dry up due to the worldwide shortage of ready cash, forcing state intervention and speculation about the consolidation of some companies there.
?Dubai is both high risk, as they have no real currency reserves, and low risk in that Abu Dhabi will bail them out,? Stephens said.
Another area that the review highlights is the fall in commodity prices that has taken place over the past year, which could lower the level of political risk.
?When commodity prices like oil were rising some host countries tried to take over more control of companies, such as in Venezuela and Russia, in an effort to get more political leverage.? said Stephens. ?But with commodity prices now low, then there is less chance of that happening.?
As a result, the risk of expropriations might well fall in these countries. Russia has an economic risk rating of 5 and Venezuela of 6 in the world risk review.
Stephens pointed out that for the short term at least, Russia might be forced to take a less prominent position on the world stage. ?We might see some changes in political power,? she said.
(By Marc Jones, London news editor: marc.jones@ambest.com)
Copyright ? 2009 A.M. Best Company, Inc.
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