By Warwick Knowles,Senior Economist at Dun & Bradstreet
Risks remain geographically spread and diverse. Risks associated with trade, politics, economic developments, new technology and climate change mean that businesses have to prepare for – and combat– the impacts of an increasingly complex and globalised world. This applies to finance, procurement and supply-chain teams across all business sectors.
The last three years have been particularly challenging for businesses. The vast range of risks, including significant tensions between the US and China, as well as Brexit uncertainty, are still generating problems that will have ramifications for businesses globally. This makes it essential for businesses to track and manage these multiple threats– or risk damaging both their finances and their reputation.
Here, we highlight the top ten global risks for businesses, as identified by our Global Business Impact assessment.
Risk levels are above the long-term average
Overall, our Global Business Impact assessment has worsened for a fourth successive quarter, with an increase from 270 (out of a maximum 1,000) in Q4 2018 to 279 in Q1 2019. This is the highest level since Q4 2016, and is also well above the long-term average (249.9). These developments all point towards a deterioration of the global business operating environment.
Highlighting the ever-evolving nature of the global environment, there are five new entries in Dun & Bradstreet’s Q1 2019 assessment of the top ten global risks. Two of the new risks stem from our West and Central Europe region, while there are also new risks in our Latin America, Asia-Pacific, and Pan-Regional categories.
The five new-entry risks are:
- European elections this weekend with strong gains for anti-EU parties
- Risks to ecosystems and the threat of extreme weather events materialise much faster than anticipated
- Investment in Brazil’s mining sector declines
- The UK leaves the EU in a disorderly fashion
- The continuation of an ‘America First’ policy stance in Washington increases tensions
Trade risks are not going anywhere, for now
Trade risks continue to dominate in Q1 2019, as they did in the previous quarter: three of the top ten risks are associated with trade and with the increasing levels of risk for cross-border business, supply chains and business profitability.The number one risk is the concern that US tariffs hit profits and tax revenues in China as the trade war stalemates. Contagion from bad debts then triggers a rapid slowdown in China, overwhelming policy moves to stabilise the economy, with a consequent negative impact on global growth.
The second-highest trade-related risk is that negotiations fail to stop an escalating US-China trade war, with negative secondary effects counterbalancing new opportunities and acting to cool global trade growth.
Finally, the third trade-related risk (and new to the top ten) is that the UK leaves the EU in a disorderly manner, causing disruption to supply chains – mainly in Europe, but globally too.
A prominent political strain
A new and noteworthy risk in the top ten is the concern that the European elections this week will end with strong gains for anti-EU parties. This outcome would only complicate policy-making within the EU, undermining the business environment.
The second political risk,and another new entry, is that a continuation of the ‘America First’ stance in US foreign policy alienates traditional allies and therefore increases tensions. The global political environment would then become more hazardous, increasing cross-border difficulties for businesses.
New economic fears
There are two economic worries posing significant risks to businesses globally. The first risk is that pan-regional growth in global debt will trigger a fresh debt crunch. This risk, which is in sixth place in the top ten, would create a systemic banking crisis and prompt the global economy to contract.
As lightly lesser risk, originating from Latin America, is that lower investment in Brazil’s mining sector (following the latest dam disaster at Vale) could drive up global iron ore prices and those for other metals, significantly increasing the cost of inputs for industrial products.
Pan-regional issues play a part
The final three factors are all pan-regional: two relate to climate and the third to technological developments.The first risk here is that rapidly-growing cyber-dependence and connectivity will lead to more frequent and damaging cyber-security issues, with ramifications for doing business.
Secondly, the instability of the Northern Hemisphere jet-stream could continue to create persistent, anomalous weather patterns across the hemisphere, increasing costs for the public and businesses.
The last – but by no means the least – global threat to businesses is another climate-related risk. The risk here is that hazards associated with ecosystems and extreme weather events (as forecast by the Intergovernmental Panel on Climate Change) materialise much faster than the consensus view anticipates, with systemic impacts at the global level.
As new risks for businesses come to light and worsen, decision-makers must monitor the global business environment continually and carefully ahead of the expected slowdown in the global economy.
The geographical spread and diversity of risks related to trade, politics, economic developments, new technology, and climate makes the business environment increasingly challenging. It is important for businesses to continuously monitor the progress of these risks, using the latest data and analytics to assess and manage any potential business threats. A careful and measured approach to managing risks is key to navigating through these uncertain times.