9/9/2014: Russia's Risks are Up, but Still Vastly Outperforming Ukraine's

Earlier today I tweeted about the drop in the drop in the credit risk score for Russia in the Euromoney Country Risk survey. As always, one has to look at the scores in both time series context and comparative to the peer economies.

Here is the Russian score in time series context:

It is worth noting that Russian score has declines rather steadily over time, but remains well ahead the regional average for the Eastern and Central Europe. Part of Russian score decline is driven by the ECE trend, but part is idiosyncratic.

Here are the main components of the score and the direction:

The sea of read arrows is what is of greater concern - scores dropping across all categories surveyed except one: debt indicators.

For comparative, the chart below shows evolution of Ukraine score, which is much less benign than that of Russia and remains deep under-performer in the Eastern and Central Europe:

Table below (click to enlarge) shows cross-countries comparatives for score and main components for Russia's main non-EU neighbours:

At the bottom of the above table, I list countries that are in 'credit risk' proximity to Russia, Ukraine, Belarus and Moldova. One thing is clear: Russia is comparing favourably to Eastern European countries that are EU members. Ukraine, Belarus and Moldova - do not. Their proximates are least-developed countries of the region.

14/6/2014: Risk Profile for Russian Economy Shows New Strains

Quick update from my Russia Deck on ECR outlook for Russian economy's risk profile:

Click on the image to enlarge

Worth noting: this performance is not as dramatic as one could have expected given the intensity of the conflict ongoing in Ukraine and the fall-out predicted by many analysts from Crimean crisis and sanctions.

3/4/3014: Latest Country Risk Updates: April 2014

Latest updates to ECR Euromoney Country Risk scores (higher score implies lower risk):

Two notable sets of changes:

1. Russia and Ukraine scores continue to fall, with Ukraine still leading Russia
2. Euro area 'periphery' scores continue to rise, with Portugal and Ireland showing biggest improvements.

20/3/2014: Latest Changes to Country Risk Ratings for Ukraine & Russia

Big drop in country risk scores for Ukraine and Russia today via @euromoney ECR :

Note: higher score implies lower risk.

Here is Ukraine's performance over time and comparative to ECE:

Note that current score is 30.43, lower than in the above chart.

And here is Russia's performance:

You can see the vast gap between two countries in terms of overall scores. Russia is running (still, even with latest decline) close to the world average and well ahead of regional average, while Ukraine clearly under-performs world and regional averages.

6/9/2013: Euromoney Country Risk Survey: Upgrading Irish Banking Sector Risks Outlook

Some good news for Ireland out of a number of surveys today. First, BlackRock Investment Institute survey of country experts shows Ireland improving economic outlook 6 months forward - details here: http://trueeconomics.blogspot.ie/2013/09/692013-blackrock-institute-survey-north.html

Now, Euromoney Country Risk survey shows significant improvements in market experts assessment of Irish banking sector stability:

While both reflect opinions of experts, including experts within the specific sectors, the two are good indicators of the general direction toward gradual improvement in country economic outlook. Let's hope the Budget 2014 and mortgages arrears workouts do not derail this trend.

12/7/2013: Euromoney Country Risk: Q2 2013 update

Euromoney Country Risk Survey Q2 2013 update is out today, showing continued divergence in risk perceptions about Brics and Europe (rising risks) and North America and Latin America (falling risks):

Largest risk increases are:

One area of interest from my personal perspective: Russia:

"With one or two exceptions, the majority of former Soviet independent states, alongside Russia, have become riskier this year, continuing longer-term trends.

Diminishing economic growth is imparting a negative impact on the region, especially in light of the slowdown in Russia (Russia: Stagnant oil price dampens economic outlook).

However, the risks are also tied to worsening perceptions concerning other indicators, and for a variety of reasons, ranging from Russia’s institutional underpinnings and corruption record, and government stability in Azerbaijan, to currency and information access/transparency concerns in Ukraine and Georgia’s regulatory and policy environment.

The Kyrgyz Republic and Moldova – the latter especially – have seen their political risk profiles downgraded sharply, highlighting the region’s flaws, its failure to capitalize on the eurozone’s worse risk-return opportunities, and why Russia, ranking 62nd globally, is still the only country to score more than 50 out of 100."

I gave a comment on Russian scores changes:

My full view is as follows:

In my view, increased risks associated with the Russian economy relate to the lack of structural drivers for growth, lagging reforms and low returns on reforms already enacted, plus the overall downward revision of the emerging markets and commodities in the environment of highly uncertain and subdued global growth.

Russian Government drive toward modernisation of the economy has dramatically slowed down and is no longer appearing to be a long-term priority for policy development. At the same time, investment in the economy has fallen off the cliff due to a combination of exhaustion of construction investment, Cyprus crisis, continued low FDI and reduced overall economic growth, as well as the perception that tax increases are likely in the near future. Looming ruble devaluation is reducing both FDI and internal investment.

Institutional capital is lagging and remains largely un-effected by reforms rhetoric. If anything, last 24-30 months have seen sustained deterioration in reforms efforts. The comprehensive agenda for modernisation of the economy has been pretty much frozen, if not abandoned.

On the longer-term horizon, emergence of alternative energy supplies and shale gas reserves development worldwide is starting to feed through to the forecasts for future current account and earnings capacity of the Russian economy.

However, there is a negative bias built into markets analysts expectations and assessments of the Russian economy, compared to other BRICS. Brazil and India have largely unsustainable models of longer-term growth driven by internal investment dynamics, instead of institutional capital build up, China is a massive credit bubble ready to blow with current account surpluses acting as the only potential buffer, given already extensive expansion of credit and money supply undertaken, and South Africa is hardly a sustainable, or significant in global terms, economy by any measure. In my opinion, Russia's economic future is highly uncertain. But of all BRICS - Russia has the best potential for stable and sustainable growth based on intrinsic workforce and domestic investment and demand potentials. Whether it will realise these potentials is a different matter.

10/7/2013: France credit score continues to slide

Per Euromoney Country Risk Survey, France score continued to decline in Q2 2013 falling to 71.9 from 72.3 in Q1 2013, despite tighter CDS. France now ranks as the second worst performer in the euro area after Slovenia.

France's score is well behind AAA-rated Germany and is 0.7 points behind the G8 average. The core drivers for recent downgrades are:

• Deteriorating Government finances;
• Poor employment outlook; and
• Increased transfer risk

8/6/2013: Euromoney Credit Risk summary for Ireland

Latest results for Euromoney Country Risk survey for Ireland:

20/1/2013: Euromoney Credit Risk Data: Q4 2012

All of the G10 countries, with the notable exception of Sweden, saw their risks rise in 2012, according to the latest results from Euromoney’s Country Risk Survey – and not just because of the problems affecting the debt-ridden euro zone sovereigns.

ECR (Euromoney Country Risk survey data for Q4 2012 is out and the results are quite interesting. Broadly they confirm the risk dynamics traced by the survey through the entire 2012, suggesting that qualitatively little has changed over 12 months to signal the improvements in the global economic environment.  Here are some top-line results:

• Of G10 countries, all but one (Sweden) saw further deterioration in ratings.
• G10 ratings deteriorations were not only driven by the continued euro area crisis, but are also present in the case of Japan, the US, and the UK own dynamics.
• Japan and the US continued "on a downward trend, as various economic and political problems continued to raise alarm bells among economists and country-risk experts regarding their medium-to-long term fiscal viability…"
• "Japan’s crippling debt problems, stunted growth and deflation have seen its score fall to 65.5 out of 100 and to 32nd out of 185 countries surveyed – a new record low, when 20 years ago Asia’s former powerhouse was ranked the world’s safest sovereign."
• US scores were down 1.6 points over 2012 to 74.7. 
• "…The US is far from a substantial risk – it is, after all, the 15th safest sovereign in the world, according to the survey. However, US politics has had a decidedly negative influence on its risk profile – all six of the political risk indicators were downgraded in 2012".
• On December 'deal' reached by the US Congress and the White House: "The two sides in the debate must still find common ground to negotiate $110 billion of spending cuts (the “sequester”) without bringing the US economy to a grinding halt. A budget must be agreed, while raising the $16.4 trillion debt ceiling even further presents another, even more perplexing, question of how to ensure medium-to-long term fiscal sustainability in light of adverse demographics – the weakest of the country’s structural factors, according to the survey."

Realting to two major themes I have been highlighting for some time now:

1. The fallout of the euro area from the global growth & growth environment clusters; and
2. The relative rise in risk quality in the 'Southern' growth clusters, leading to relative convergence in risks between the deteriorating 'North' (advanced economies of the West) and the improving 'South' (the middle income and some emerging economies of Asia-Pacific and Latin America)

we have this:

• "Risk differentials between the G10 and the emerging market regions narrowed by between two and three points in 2012, to 25 points for the Middle East and to 30 points each for Asia and Latin America." This is a notable result, coincident with one major theme in global risk changes that I have highlighted for some time now.
• "Differentials between the eurozone and emerging markets saw even larger shrinkage, highlighting that, although traditional markets are still safer, their comparative advantages have diminished."
• "Some of the emerging markets became safer in 2012: those that were largely decoupled from Europe’s debt problems – growing rapidly in many cases – and with fewer domestic issues." 
• "Latin America saw three distinct patterns emerging. Brazil, Chile and Colombia continued their long-term ascent in the global rankings, despite having their economic scores shaved by a slowdown in China paring back commodity demand. Argentina and Venezuela struggled with their domestic crises, which caused both countries to slide further down the rankings. Mexico, Peru, Uruguay and Bolivia all emerged on the radar, benefiting from strong policy management, good growth and other factors."

A special place in the risk rankings 'hell', however is reserved for the euro area:

• "Eurozone countries, …saw shrinking levels of confidence as Slovenia, Cyprus, Spain and Italy endured the largest falls in country risk scores of any of the countries surveyed worldwide, weighed down by creaking banks, rising debts, contracting economies, and the political and structural dimensions to the crisis."
• "The eurozone score fell by 3.1 points, the largest drop of any of the main geographical or economic regions."
• In the case of largest downgrades within the euro area: "All four saw their risks continue to rise during the fourth quarter, despite some progress in tackling their fiscal problems. Bond yields fell and credit default swap (CDS) spreads tightened, suggesting the risks had eased, but ECR has had reason to doubt CDS signalling." Which is the theme consistent with my analysis of CDS in the past.
• Of the peripherals: "Italy, down 14 places in the global rankings this year (to 51st place), Spain (an 18-place faller to 58th), Cyprus (down 11 to 42) and Slovenia (plunging 15 places to 37th) all failed to convince country-risk experts that the worst of the crisis was over."
• The crisis is now perceived to have spread from purely financial and fiscal dimensions to political and structural: "The systemic banking sector and sovereign debt problems stretching across the single currency area have invariably influenced economic risk assessments. However, the political and structural elements to the crisis have resulted in broadly equivalent falls in scores for each of the three measures of risk, on a euro-wide basis."

• On ECB actions: "...in the absence of growth and amid justifiable concerns about the political commitment to budget consolidation and reform – highlighting the risks of policy execution failure – fiscal projections have proved wildly optimistic, deferring the prospect of outright debt reduction for many countries." In other words, while ECB can talk as much as it wants (OMT, the inevitability of the euro etc), end-game is set by real actions. And these are now increasingly in question.
• "Peripheral country risk remains high, even in Greece, which has seen its ECR score stabilize this year, yet on a score of just 34 points and languishing in 110th place on the ECR scoreboard, the country’s problems are far from over… All of Greece’s economic and political factors, 11 in all, score less than five out of 10 as another future debt rescheduling looms. The much-feared Grexit is still not out of the question either, although the markets have been calmed by the progress achieved to date."
• "Debt resolution programmes in Spain, France and other countries are all being questioned."

You can see (subscribers only) the data and play with interactive charts and maps here and the overall site for the data is www.euromoneycountryrisk.com.

2/8/2012: Latest Euromoney Country Risk Survey results

Recent Country Risk survey by Euromoney shows some interesting trends relating to the Russian economy. Here are the headlines:

"The five economies of the Brics have seen an aggregate ECR score loss of 6.4 points this year, lowering the average score by 3.1 points to 56.8. South Africa (-2 points), Brazil (-1.9) and India (-1.6) have endured the worst declines in sentiment, resulting from concerns about export market conditions, amid waning demand for commodities and increased domestic security risks. However, all five have seen large declines in their economic assessment scores, as contributors have reassessed their expectations for global growth and have acknowledged the slowdown in China’s breakneck pace of expansion."

Moreover: "Four of the five Brics (Russia the exception) have also endured lower political risk scores – led by India (down 0.9 points) and China (-0.8)."

Summary of scores changes:

Specifically on Russia:

"ECR economists still regard Russia as the weakest of the Brics, ranking 60 in the world, despite the three main ratings agencies placing India below Russia. India might have a lower economic assessment than Russia, but its political and structural risk assessments are more favourable, according to ECR contributors, with particularly large gulfs in the scores for government non-payments/non-repatriation, information access/transparency, institutional risk, the regulatory and policy environment, and demographics – factors seemingly not being reflected in the various credit ratings. This might be due to the comparative security provided by Russia’s status as one of the world’s largest energy producers."

Despite this, current survey shows little deterioration in Russia's risk score with June 2012 risk assessment on par with China:

See more on the survey results here.

Disclosure: I will be joining Euromoney survey panel starting with the next survey.