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Allianz Trade has launched its inaugural Country Risk Atlas, detailing insights into country risk. This comprehensive guide utilises a unique risk assessment model, refreshed quarterly to incorporate the latest economic trends and exclusive data on worldwide insolvencies and business climates.

The global economy demonstrated its robustness throughout 2023, despite numerous challenges. The debut edition of the Country Risk Atlas by Allianz Trade notes an upward adjustment in the risk ratings of 21 countries, contrasted with only 4 downgrades. This marks a significant shift from the previous year, which saw 8 upgrades against 17 downgrades.

Ana Boata, Head of Economic Research at Allianz Trade, said, “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.”

The average risk rating across all countries evaluated by Allianz Trade for 2023 is slightly over 2 (Medium Risk), maintaining stability with the previous year and nearly reverting to the levels seen in 2019. 

On a regional scale, Africa’s average risk rating exceeds 3 (Sensitive), with the Middle East, Latin America, and Eastern Europe (including Russia) just below this threshold. The Asia Pacific region is marginally over 2 (Medium Risk), whereas Western Europe and North America are nearing 1 (Low Risk).

Regarding the UK, the economic forecast is stable, though not particularly hopeful. The UK’s performance in comparison to other nations is as follows:

• AA1: Australia, Canada, USA, Belgium, Denmark, Finland, France, Germany, Ireland
• AA2: UK
• A1: Malta, Taiwan, Spain, Japan
• A2: Italy
• B1: China, India

The UK’s economy is expected to narrowly avoid a recession in 2023, but the outlook remains subdued, mirrored by the low confidence among consumers and businesses. Exports have not reached pre-pandemic levels, making the UK an exception among G7 nations. 

Nonetheless, the economy has been buoyed by strong domestic demand, especially from consumers, supported by significant savings accumulated since the pandemic and robust consumer credit growth, albeit with potential medium-term risks. This domestic demand has supported the economy in overcoming international challenges, enabling it to exceed its pre-pandemic real GDP by approximately 3%.

GDP growth in the UK is forecasted to be modest, at +0.5% and +0.6% for 2023 and 2024, respectively, with an expected increase to +1.5% in 2025. Inflation is on a slow decline but remains well above the Bank of England’s target, with no expectation of dropping below 2% before 2025. 

This is partly due to ongoing pressures in the services sector and a still-tight labour market. The UK’s wage growth, outpacing that of its counterparts, heightens the risk of a wage-price spiral. Given these inflationary pressures, interest rates are likely to remain elevated for an extended period, with no anticipated cuts until the fourth quarter of 2024.

In the current political climate, the UK continues to foster a pro-business environment, despite an increase in corporate tax from 19% to 25% in 2023. Even with this hike, the UK’s tax rate remains below that of the largest EU economies. 

However, Brexit has adversely affected the UK’s trade terms, particularly as foreign direct investment has declined and the sterling has depreciated significantly.

The UK is actively pursuing additional trade agreements post-Brexit to enhance its global trade network. A significant development is the expected Free Trade Agreement with India, although discussions are still underway. 

This is part of a broader strategy to adjust to new trading conditions outside the EU. Recent years have seen the establishment of FTAs with countries like Australia (December 2021) and New Zealand (February 2023).

Furthermore, in July 2023, the UK joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), connecting it with a crucial trade bloc in the Asia-Pacific region comprising 11 countries.