Levels of US economic risk on a par with Morocco and Brazil, says JLT
US economic stability continues to be rapidly undermined, with the region experiencing a Country Economic Risk Rating comparable with a number of emerging markets, including Morocco and Brazil. This is according to the latest findings of the World Risk Review, a country risk ratings guide produced by leading specialist insurance broker and risk consultant Jardine Lloyd Thompson.
“The latest findings from the World Risk Review underline the severity of the situation within the US, as the country concedes that Hank’s mortgage bailout was simply not enough,” said Doctor Elizabeth Stephens, Head of Credit and Political Risk Analysis at Jardine Lloyd Thompson, referring to Hank Paulson, the Treasury Secretary. “Requests for bailouts have spread beyond the banking sector and government must decide at what point financial support ends. And with Barack Obama taking the keys to the White House in January, it’s clear that a line in the sand must be drawn.
“Given the escalating tensions between India and Pakistan this is increasingly critical, as Obama will be forced to mediate between two agitated nuclear powers.”
The US risk rating alignment reflects the condition of public accounts, foreign exchange reserves and contagion and comes as a direct result of the credit crisis. Treasury yields are at record lows across the term structure and investors must question at what point the increasing supply of government debt and its use will make the borrower inherently less creditworthy.
Meanwhile in the United Arab Emirates (UAE), a growing body of evidence suggests that Dubai is the latest victim of the credit crunch and that worse is still to come, leading the Emirate to battle an over extended equity market and an increased level of economic risk for foreign business.
Doctor Stephens added “With the real estate and equity markets falling, Dubai can no longer rely on the financial support of cash rich Arabian states without commercially binding strings attached. And with Dubai’s debt load already estimated at four times the average of other Gulf states, there is mounting speculation that the Emirate will be forced to exchange cash for equity stakes in the likes of Emirates Airlines and Dubai Aluminium – two businesses that represent the jewel in the crown of Dubai.
“Over the past five years, Dubai has become one of the primary beneficiaries of a booming real estate and equity market. However, as the UAE marks its 37th anniversary in December and as worldwide markets continue to contract, it’s clear that the gulf state is dramatically over extended.”
Abu Dhabi, Dubai’s wealthy neighbour, has already stepped up support for Dubai’s real estate and banking sectors following the merger of two mortgage companies into two federally owned banks. The move marks the first direct state intervention since the federal government’s $13bn injection into United Arab Emirates (UAE) banks and hints towards further market consolidation and federal backing in 2009.
The developments in Dubai represent a serious blow to western economies, as the UAE was considered bullet proof to the global financial slowdown. However, with the energy and construction bubble fit to burst, combined with a rapidly expanding expatriate population and a largely unspoken regional recruitment freeze, the future for the economy looks bleak.
The World Risk Review evaluates 197 countries, according to nine different perils, every month. The risk ratings model is regularly upgraded, downgraded and evaluated to provide a unique insight and analysis into individual countries and regions around the world.