Methodology

Euromoney’s new-look country risk rankings reflect the seismic shifts that have taken place in international investment over the past three years. Markets that were once seen as growth opportunities are now becoming core investment propositions. Poorna Harjani reports.

After a year that turned out better than anyone could have expected, 2010 began with a new bout of nerves on financial markets.

With the international economy more volatile than ever, global investors are paying more attention to country risk analysis. Risk looms both where you most and least expect it. In Euromoney’s latest rankings, the US has fallen out of the top 10. Jacqueline Cutler reports.

The impact of the credit crunch spread across the world over the past 12 months. Eastern Europe was badly hit, and the Middle East and Asia could no longer claim to be immune.

It could be the perfect storm – financial, macroeconomic and geopolitical risk are all on the rise. Risk is both where you anticipate it, and where you least expect it.

The US is in danger of dropping out of the top 10 in our semi-annual country risk survey as fears of an economic downturn and an uncertain political future dent analysts’ confidence.

Despite the fallout from US sub-prime woes, analysts are optimistic about prospects for the global economy, as commodities remain strong. But the US drops out of the top five in Euromoney’s latest country risk rankings. Oliver Hexter reports.

Event risk remains the biggest threat to the world’s economic prospects. But globalization means that, although economic imbalances might persist, the likelihood of a major worldwide correction is low.

The latest country risk poll reflects a global economy in good health, despite a period of stock market volatility and the prospect of a slowdown. But the Middle East and the high price of oil could have far-reaching implications, writes Florian Neuhof. Research by Paul Pedzinski.

Oil producers strike it rich, but long-term issues remain

The high price of oil highlights the fact that many economies are too reliant on raw materials exports, with governments creating unfavourable conditions for foreign investment through neglect or for political reasons. Florian Neuhof looks at the main drivers behind Euromoney’s latest country risk poll.

Country risk index: Most countries have better access to capital than ever before and sovereign credit ratings have been on the rise for the past three years. But an increasingly tense geopolitical environment has led to marked decline in this year's country risk ratings. Research and analysis by Paul Pedzinski.

A reveiw of 13 years of country risk, region by region. Emerging markets are now established as part of the fabric of international investment. But don't be fooled into thinking that the increased flow of investment follows a decline in risk. Research and analysis by Chloe Hayward.

Country risk index: The latest Euromoney country risk survey reflects a slight downgrade in the assessment of overall risk levels despite sovereign upgrades from rating agencies.

Country risk index: The latest Euromoney country risk survey, which for the first time incorporates data on perceptions of corruption, reflects continuing upheaval in the Middle East and Africa that is only partly compensated for by a favourable global trade environment.

Country risk index: The strong currency is damaging economic performance in the eurozone. But the outlook for some emerging markets is brighter, thanks to rising commodity prices and improving prospects for Asia. Paul Pedzinski and Andrew Newby report.

Country risk index: East Asia continues to lead the growth pack, but offers significant risk; Turkey is - once again - at a turning point; and Africa continues to be unsettled, but with less risk of inter-country contagion.

Oil prices have helped cushion the effects of slack global growth for many energy exporters. Asian and European growth is accelerating but there are wide regional variations and the World Bank warns that the world economy may well slide into recession.

Euromoney’s analysts have taken a measured view of such hyperbole as the “axis of evil” and resisted over-reacting to the situation in such regional crisis points as southern Africa. Latin America’s troubled economies suffer the severest downgrades.

Six months ago rising oil prices, the bursting of the new economy bubble and weaker financial markets were increasing the dangers of a recession even before the blow of September 11. Although the direct effects of the attacks have been relatively small and sector-specific, the effect on business confidence is likely to be large in the short term. In our latest review of country prospects Euromoney's panel of experts has revised down average global projections for 2002-03 for 79 countries and has revised up 105. On balance, consensus growth forecasts indicate strong resurgence in 2003.

Amid mounting concerns about a global economic slowdown, it is still country-specific political and economic factors that are propelling nations up and down the country risk rankings. There have been marked drops for such countries as Argentina, Zimbabwe, and Indonesia but no sign of fears of contagion spreading to their neighbours.

In the past Euromoney’s country risk ratings have been reliable lead indicators of dips and surges in the world’s economic cycle. Six months ago the global economy looked in fine fettle, underpinned by favourable commodity prices and strong growth in developed countries. Financial markets are fearful this is about to change. Analysts’ forecasts for economic performance are noticeably lower than in September’s survey. But it’s not all doom and gloom. Research by Damon Ivanics and Andrew Newby

It has been a busy year for presidential and parliamentary elections - and coup attempts. Throw in worker unrest (Peru, Ecuador, Ghana), violent separatism in Indonesia and looming emerging market elections and it would be wise to expect big changes in Euromoney’s first Country Risk ranking in 2001. Keri Geiger reports

The last six months have seen a marked turnaround for the world economy. A year ago the larger emerging-market countries were falling in the rankings as investors lost confidence in Brazil, Russia and other crisis-ridden giants. This year favourable commodity prices, better risk management and buoyant developed country economies point to better times ahead. There are some big winners in the latest Euromoney country risk ranking. Research by Andrew Newby.

The emerging markets are bouncing back - at least some of them are. While they do, the market is holding its breath as crisis-hit countries implement fiscal and monetary reforms. And while economists believe growth rates will improve, they are also resigned to sovereign defaults on foreign debt. Commentary by Rebecca Cicolecchia, research by Alexa Marx.

For this, our 27th ranking of the world's countries by creditworthiness, we have altered the scoring slightly. We have included a measure of per capita income into the score given for economic performance. This has boosted the ranking of a number of countries - especially smaller ones -which were previously penalized because little data was available on their economic performance (see methodology).

It's a measure of the turmoil in world markets that not a single bank was at first prepared to supply the forfaiting rates used by Euromoney in its calculation of these country-risk rankings. So fast were things changing that even these usually stable indicators became too volatile. Banks supplied them on request on a day-by-day basis to clients an indication of how difficult trade finance, the lubricant of the real economy, was becoming.

After the emerging-markets crisis, which countries remain creditworthy?

Continental Europe makes way for Scandinavia and North America in Euromoney's biannual survey of country creditworthiness. Pressure to conform to Maastricht criteria on Emu has dampened growth, tightened budget deficits and weakened consumer demand. High unemployment and currency weaknesses have pushed countries such as Switzerland, France and Italy down the ranking. Rebecca Dobson reports.