The Global Risk Matrix Q4 2017

Ten key global risks for business

The Dun & Bradstreet Global Risk Matrix (GRM) ranks the biggest threats to business based on each risk scenario’s potential impact on companies, assigning a score to each risk. The scores from the top ten risks are used to calculate an overall Global Business Impact (GBI) score.

Our latest GBI score highlights an improving risk outlook for cross-border businesses. This reverses the deteriorating trend seen in the previous quarter, and – importantly – the score is significantly better than the long-term average.

Risks Have Trended Downward since 2016

Dun & Bradstreet’s GBI score fell from Q3 2017’s 239 (out of a maximum 1,000) to 228 in Q4, indicating an improvement in the global business operating environment. Importantly, the Q4 score is a significant improvement on the position at end-2016, when the GBI reached an almost-record high of 281 as uncertainty peaked following dramatic political events in 2016 (such as the UK’s vote to leave the EU and the election of Donald Trump as US president). The Q4 outcome means that the average GBI for 2017 was 228.5, down from 247.25 in 2016 and the lowest annual average since the matrix was launched.

Our top ten risks combine an assessment of: (i) the magnitude of the event’s probable effect on the global business operating environment, on a scale of 1 to 5 (where 1 is the smallest impact and 5 is the largest); and (ii) the likelihood of the event happening.

Six New Risks in the Global Top Ten

Dun & Bradstreet’s Q4 2017 Global Risk Matrix has six new entries since our last Global Risk Matrix in Q3: two each from the Latin America and the Middle East and North Africa (MENA) regions, one from North America, and one pan-regional risk. This geographic spread shows that finance, procurement, and supply chain teams across all business sectors face urgent and ever-evolving risks in an increasingly complex and globalised world.

The six new-entry risks are:

1. That the crackdown by Saudi Arabia’s Crown Prince leads to an increase in social tensions in the country, pushing the oil price above USD80 per barrel (GBI 30, out of a maximum 100);
2. That shifts in the US’s trade-policy stance negatively affect global trade flows (GBI of 24);
3. That Saudi-Iranian tensions lead to actual military conflict between the two countries, with the targeting of oil installations causing oil prices to hit USD120 per barrel (20);
4. That NAFTA negotiations fail to produce a compromise, leading to NAFTA’s collapse (20);
5. That Venezuela is unable to restructure and/or refinance USD89bn in debt (19);
6. That the accelerated integration of bitcoin and other cryptocurrencies into mainstream global financial markets creates regulatory challenges and portfolio risks (18).

Among our pre-existing risks, three are unchanged, namely: that rapidly growing cyber-dependence and connectivity leads to increasingly frequent and more damaging cyber incidents (36); that US tax reform falls short of expectations and fails to deliver significant gains to growth (20); and that persistent economic hardship and growing frustration with government policies and corruption triggers revolutions in the Eastern Europe and Central Asia (EECA) region (20). The likelihood of the remaining risk in our top ten – that the US Federal Reserve raises rates too fast, with global knock-on effects – has fallen from 40% to 35%, bringing its GBI down from 24 to 20. Significantly, our top ten contains no risks emanating from Europe (the first time this has happened since the GRM’s launch in Q3 2013), indicating that the risks previously associated with the EU are slowly dissipating.

Technological Changes are Causing Disruption

Rapidly-evolving technology is disrupting the business operating environment to a greater extent than ever before. This is highlighted by the two pan-regional risks in our top ten. The biggest risk – for the second consecutive quarter, and with a GBI of 36 – is our concern that the rapidly growing problem of cyber dependence and connectivity will lead to more frequent and more damaging cyber-security issues, with ramifications for doing business. This risk has been increasingly evident in 2017. Our second technology-centred risk is in tenth place, with a GBI of 18. This risk is related to the accelerated integration of bitcoin and other cryptocurrencies into mainstream global financial transactions and markets, posing new regulatory challenges and risks to investors' portfolios.

Increasing Risks from MENA

Two new entries in the GRM’s top ten emanate from MENA. A number of risks from this region are also bubbling under the top ten, highlighting the increased risks MENA poses to the global operating environment. In second place overall in the GRM, with a GBI of 30, is our worry that the recent crackdown by Saudi Arabia’s Crown Prince Mohammed bin Salman will provoke large-scale unrest in the Kingdom and push the oil price above USD80 per barrel (/b). In equal fifth place (GBI of 20) is our concern about an escalation in Iranian-Saudi tensions leading to a direct military confrontation (as opposed to the proxy wars currently being fought). Any direct military conflict would likely target oil installations, pushing oil prices up to USD120/b.

Concerns Loom for North America

The GRM also highlights the importance of the US economy (and especially policy-makers in Washington) for the continuing global recovery, with three of our top ten risks emanating from the US. In third place, with a GBI of 24, is our concern that shifts in US trade policy, in particular US withdrawal from multilateral agreements, could disrupt global trade flows in the short term as other countries re-evaluate their own stance and cultivate new partnerships.

In fourth place is the worry that the US Federal Reserve raises interest rates too fast in an attempt to pre-empt inflationary pressures, choking US expansion and heightening volatility in global currency markets and, by extension, growth prospects. This has a GBI of 21, down from 24 in the previous report, as this risk’s likelihood has fallen from 40% to 35%.

In equal fifth place, with a GBI of 20 (as in the previous report), is the third risk emanating from North America: US tax reform could fall short of expectations and fail to deliver significant gains to growth, thus raising future deficits and creating longer-term headwinds, in turn slowing both US and global growth.

Latin America and EECA Pose 3 Risks

The first of the two Latin America-derived risks is a new entry, in equal fifth place with a GBI of 20. Our concern here is that Mexico rejects the US’s NAFTA proposals in the fifth round of talks in late November 2017, delaying the approval of any subsequently-negotiated deal to the tenure of Mexico’s incoming president (a presidential election is due in July 2018). If the new president were to reject the deal, leading to NAFTA’s collapse, it would hit global trade flows as supply chains were realigned. The second risk emanating from Latin America is that Venezuela is unable to restructure and/or refinance USD89bn in debt because of US sanctions. This could lead to the triggering of credit-default-swaps and creditors' seizure of assets, further crippling the oil-based economy and raising concerns over other emerging-nation sovereign debt.

The final risk in this quarter’s Global Risk Matrix is that persistent economic hardship and growing frustration with government policies and corruption in EECA triggers revolutions in the region, leading to the collapse of political regimes. The resultant chaos would impact negatively on supply chains and the global business environment. This risk is in equal fifth place, with a GBI of 20.

Summary: Business Environment Deteriorates, but is an Improvement over the Long-term Average

The Dun & Bradstreet’s Global Business Impact score for Q4 2017 shows that risks facing businesses have eased, following a heightening of risk in the previous quarter. Importantly, risk is currently lower than the long-term average, indicating that businesses have overcome the high levels of uncertainty caused by the Brexit and Trump votes in 2016. Nevertheless, concerns around new technology, politics, security and policy-making weigh heavily on the business environment, which remains challenging, and business decision-makers need to be aware of the rapidly-changing risk environment.