UK deemed ‘medium risk’ for enterprises as China gets upgrade in global league table
Allianz Trade today releases its first Country Risk Atlas, a new flagship publication focused on country risk, an expertise the world leader in trade credit insurance has built up over decades. The Country Risk Atlas is based on a proprietary risk ratings model that is updated every quarter with the latest economic developments and Allianz Trade’s proprietary data on global insolvencies and the business environment.
In 2023, the global economy showed resilience in spite of several global shocks
In its first Country Risk Atlas, Allianz Trade reveals that it upgraded[1] 21 country risk ratings in 2023 while downgrading only 4. The trend is totally different from that of 2022, when Allianz Trade upgraded only 8 country risk ratings while downgrading 17.
“In 2022, our country risk ratings were largely influenced by the repercussions of the war in Ukraine. But in 2023, the global economy has shown a certain resilience against one of the most aggressive global monetary policy tightening cycles and in the face of some major global shocks. As such, we have upgraded 21 economies’ risk ratings, equivalent to around 19% of the global GDP. Africa has seen the most upgrades (10), followed by Europe (6), while only China and Uruguay have seen their country risk trajectories improve in Asia and the Americas, respectively,” Ana Boata, head of economic research at Allianz Trade, said.
Overall, when looking at the average of all of Allianz Trade’s country risk ratings, the global risk of non-payment for companies in 2023 stands slightly above 2 (Medium Risk), stable compared to 2022 and almost back to 2019 levels. Regionally, Africa’s average risk rating stands above 3 (Sensitive), while the Middle East, Latin America and Eastern Europe (incl. Russia) are close to but below 3 (Sensitive). Asia Pacific is slightly above 2 (Medium) and Western Europe and North America are close to 1 (Low).
UK outlook: Stable but far from optimistic
How the UK compares to other economies
- Australia – AA1
- Canada – AA1
- USA – AA1
- Belgium – AA1
- Denmark – AA1
- Finland – AA1
- France – AA1
- Germany – AA1
- Ireland – AA1
- UK – AA2
- Malta – A1
- Taiwan – A1
- Spain – A1
- Japan – A1
- Italy – A2
- China – B1
- India – B1
The UK’s economy is likely to have narrowly sidestepped a recession in 2023, though the economic outlook remains far from optimistic, reflected in subdued confidence among consumers and businesses alike. The external environment has been a recent drag, with exports remaining below pre-pandemic levels, an outlier among G7 countries. A bright spot has been the resilience of domestic demand, particularly from consumers buoyed by significant savings amassed since the pandemic but also strong consumer credit growth, which builds up risks in the medium run. This buffer has propped up an economy that leans heavily on private consumption amid a tough international environment, helping it surpass its pre-pandemic real GDP by close to 3%.
While we expect the UK to avoid a full-blown recession, GDP growth will remain low at +0.5% and +0.6% in 2023 and 2024, respectively. Allianz Trade also predicts GDP growth to hit +1.5% in 2025. While inflation is gradually trending downwards, it continues to linger significantly above the BoE’s target and a return to below 2% is not expected before 2025. This sluggish decline stems in part from ongoing pressures in the services sector and a labor market that – despite signs of cooling – remains tight. Wage increases in the UK, which have surpassed those of peers, fuel the risk of a wage-price spiral. In the context of these ongoing inflationary pressures, it is anticipated that interest rates will stay higher for longer with no foreseen rate cuts until Q4 2024.
In this evolving political landscape, policy towards investment remains favorable and the UK maintains an overall pro- business policy stance. Despite the rise in corporate tax from 19% to 25% in 2023, the UK’s rate is still lower than that of the EU’s largest economies. However, Brexit has worsened the UK’s terms of trade, notably as foreign direct investment has adjusted on the downside and the sterling has suffered from a strong depreciation.
The UK continues to negotiate further trade agreements post-Brexit, seeking to strengthen its global trade network. A notable advancement is an anticipated Free Trade Agreement (FTA) with India, though negotiations remain ongoing. This effort is part of a broader strategy as the UK adapts to new trade dynamics outside the EU. A number of FTAs have been established in recent years, including with Australia (December 2021) and New Zealand (February 2023).
In addition to these, the UK joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in July 2023, linking it with an important Asia-Pacific trade bloc of 11 countries.
[1] An upgrade means an improvement of the country risk rating and thus decreasing risk.
