1

D&B’s Global Economic Outlook 2012 in Review and 2013 Outlook

Around the World – Regional Insights, Upgrades and Downgrades

North America (US, Canada) and Mexico n Latin America n Europe n Eastern Europe and Central Asia n Asia Pacific n Middle East and North Africa n Sub-Saharan Africa

2

2012 in ReviewGlobal growth slowed during 2012, with North America the exceptionA global economic recovery proved harder to come by than

originally anticipated, according to D&B’s Global Review

2012. Real GDP growth will total 2 percent for the year,

four percentage points lower than the 2.4 percent growth

predicted in early 2012. A number of challenges stood in

the path to more widespread global economic growth,

including a protracted Eurozone crisis, waning demand for

Chinese products, reduced reliance on commodities in the

Asia/Pacific region, and economic sensitivity in emerging

economies. North America proved a rare bright spot,

however, thanks to a strengthening US private sector.

Making sense of data is what we do at D&B. We collect and analyze global data to identify patterns, make predictions, and offer you an informed perspective. D&B’s Global Economic Outlook is our most popular assessment of the year in review and the year ahead.

Policymakers have addressed a number of issues in Europe but still need to do moreThe Eurozone crisis grabbed headlines for most of the

year as policymakers fought a rearguard action on a

number of fronts. The European Central Bank (ECB) has

maintained a record-low interest rate at 0.75 percent

since July, earned more than $1.3 trillion in long-term

financing for the banking sector, and introduced a thus-

far unused sovereign bond-buying scheme (Outright

Monetary Transactions) to buy debt from countries that

request bailout funds. Meanwhile, 25 countries joined a

fiscal pact in March giving Brussels the power to review

national budgets, expand the European Financial Stability

Facility (effectively a firewall for indebted sovereign

governments) and European Stability Mechanism (to help

recapitalise private sector banks) to around $1 trillion, and

begin discussions on a possible European banking union.

While these moves have sustained the Eurozone in the

short term, more needs to be done to stop a Greek exit.

Meanwhile, national governments introduced austerity

measures to reduce burgeoning fiscal deficits and public

sector debt levels, a development that has additionally

impacted short-term growth prospects.

2.6

1.5

1.8

1.4

-0.8

0.9

5.5

2.7

4.3

6.9

9.2

2.0

0.9

2.0

-0.8

1.7

0.0

4.6

1.9

3.6

5.5

7.4

2.3

1.3

1.9

0.2

1.6

0.9

4.8

4.0

3.7

6.1

7.1

Real GDP Growth (%)

World

Advanced economies

US

Euroland

Japan

UK

Emerging economies

Brazil

Russia

India

China

2011 2012f 2013f

Notes: ‘PMI’ is the Purchasing Managers Index – a reading above 50 denotes an expansion in sectoral activity, and one below 50 a contraction; the Global Commodity Price Index is the IMF’s price index for all primary commodities (2005=100). Sources: IMF; JPMorgan; D&B

Key Global Growth Indicators

140

160

180

200

220

240

46

48

50

52

54

56

58

Apr

May Ju

n

Jul

Aug Se

p

Oct

PMIPrice Index (2005=100)

Global Manufacturing PMI (left-hand axis)Global Services PMI (left-hand axis)Global Commodity Price Index (right-hand axis)

3

US economy staggers towards recovery, while Chinese growth slowsIndividual countries fared quite differently throughout

the year. A rebounding corporate sector boosted the US

economy in 2012, in spite of public sector debt. China

struggled against sluggish European demand for its

exports and weak domestic demand, resulting in serious

recessions in a range of industries, from steel-making

to construction equipment to consumer electronics.

Nevertheless, the country nearly hit target growth of 7.5

percent in 2012. Japanese growth likewise rebounded

after the devastating effects of the 2010 earthquake and

tsunami, but stalled in Q4 2012. And austerity

measures in the UK resulted in

a year of stagnation.

Challenges to global growth remain highMeanwhile, the Great Recession

lived up to its title as recovery

has proven more prolonged and

challenging than any previous

recession in the last century.

A unique set of challenges and

opportunities face businesses

at the tail end of 2012. Critical

growth factors in the near and

long term include: 1) Fiscal challenges facing countries

in the Organisation for Economic Co-operation and

Development (OECD); 2) Deregulation and rebalancing

in key sectors of developing economies; 3) Sectoral issues

such as housing; 4) The uncertain longer-term effects of

new monetary policies; 5) Commodity price uncertainty,

including oil prices; and 7) Food inflation. On a positive

note, growing strength in the US corporate sector could

spark a quicker-than-anticipated rebound in the global

economic recovery. A deeper examination of these critical

factors will be discussed in D&B’s forthcoming report, The

Global and Regional Outlook, 2013 and Beyond.

Regional ComparisonsOn-going problems in Europe were chiefly behind the majority of the downgradesHalf of all countries that received a growth forecast

downgrade reside in Europe, due to the protracted debt crisis.

With the exception of North America, Europe was the only

region to see no upgrades. In addition, a quarter of countries

in the Middle East and North Africa were downgraded,

owing to problems associated with the Arab Spring and

the downturn in Europe (a key trade and investment

partner). However, regime change and a stabilizing political

environment resulted in an upgrade for Libya.

Only seven countries were upgraded in 2012Lower European appetites for Asian exports resulted

in four country downgrades in the Asia/Pacific region.

Myanmar’s singular upgrade resulted from the lifting of

international sanctions. Despite its proximity to Europe,

only two Eastern Europe and Central Asian countries

were downgraded, while two (Georgia and Uzbekistan)

were upgraded as their economies improved. Two Latin

American countries were downgraded as a consequence of

curtailing economic growth, while Uruguay’s GDP growth

forecast increased. Four countries were downgraded in

Sub-Saharan Africa mainly due to political concerns and

weakened economic conditions. Nonetheless, Angola and

Sierra Leone experienced improved growth forecasts as

their economies strengthened.

3

20

30

15

23

19

22

0

1

0

2

1

1

2

0

2

15

2

4

5

4

Upgrades and Downgrades

North America & Mexico

Latin America

Europe

Eastern Europe and Central Asia

Asia-Pacific

Middle East and North Africa

Sub-Saharan Africa

Number of CountriesRegion

Number of Countries Upgraded

Number of Countries Downgraded

4

USThe private sector has deleveraged and helped drive growth but public sector debt continued to dampen growth prospects in 2012The US economy staggered along in 2012, although growth

slowed during the latter part of the year. The corporate

sector is now in its strongest financial health in years:

balance sheets have been rebuilt owing to the completion

of deleveraging programs, payment performance is

improving, and bankruptcies are declining. Some sectors

and regions have naturally performed better than others.

Meanwhile, with household deleveraging at its peak, home

prices began to recover alongside new job creation, though

at a far weaker pace than following previous recessions.

And although the unemployment rate stood at a stubborn

7.9 percent, consumer spending managed to rise. Public

sector debt nevertheless dragged on the US economy in

2012, as the fiscal deficit remained unsustainably high. By

year’s end, the political “fiscal cliff” is poised to be the chief

threat to a sustainable recovery. Without compromise, tax

increases and spending cuts totalling $600 billion threaten

to steal a couple of points of GDP growth in 2013.

CanadaGrowth staggered along in 2012 but is threatened by a bursting of a housing bubbleThe Canadian economy entered 2012 in comparatively

reasonable condition. Strong global commodity prices

helped boost the country’s economic performance

(commodities account for more than half of exports), not to

mention a stable financial sector and a relatively favorable

fiscal position. By early 2011, Canada had recouped all jobs

lost during the Great Recession. Be that as it may, economic

growth had steadily slowed. Like its southern neighbor,

Canadian economic performance in 2012 staggered

toward a distant recovery and weakened further by year’s

end. Job creation remains low, with unemployment at

7.4 percent in October, significantly higher than the 6.1

percent figure seen prior to the recession. Furthermore,

unlike the US, the Canadian housing market has failed to

course-correct; home prices and household debt remain

high despite government attempts to cool the market.

An economic downturn could trigger the bursting of

the housing bubble. Another consequence of uncertain

domestic conditions is fluctuating business insolvencies;

insolvencies rose 12.8 percent year-over-year in July but

fell by 17.8 percent in August. However, bankruptcy

proposals (a leading indicator of bankruptcy) jumped

in August, driven by sharp upturns in the construction,

manufacturing, accommodation, and food services firms.

MexicoGrowth in the US saw the Mexican economy perform better than expectedMexico has also defied the global trend, with a brighter

forecast for real GDP growth. January’s prediction of 2.9

percent growth has been superseded by a 3.7 percent

growth forecast. The Mexican economy benefited from

growth in the US, which accounts for almost 80 percent

of exports. In September alone industrial production

rose 2.4 percent compared to the same month in 2011.

The country also enjoyed robust US investment and

remittances from its migrant workforce. Overall, Mexico’s

economic performance remains inextricably linked to US

fortunes. On the other hand, rampant corruption, crime,

and violence related to drug cartel operations continue

to undermine the Mexican business environment.

Despite these issues, Mexico rose a creditable five places

to 48 in the World Bank’s Doing Business 2013 survey,

with significant improvements in the areas of Starting a

Business and Getting Electricity.

Regional Insights • The US private sector boosted growth in

spite of a drag effect created by public sector debt in 2012.

• As with the US, Canadian growth slowed towards the end of 2012.

• Mexico’s fortunes remained inextricably tied to US economic performance.

– Upgrades: None. – Downgrades: None.

North America and Mexico

5

Regional ReviewLower internal and external demand led to lower regional growthLatin American growth declined as trade with internal

and external partners moderated due to low global

growth. Several economies mirrored this trend through

lower domestic private consumption. In response, key

economies such as Argentina and Brazil implemented

trade protectionist measures in an effort to shield local

manufacturers. Quantitative easing adopted by the US

also resulted in growing pressures on regional currencies,

prompting varying degrees of central bank intervention.

While regional growth stood lower than in 2011, individual

economies experienced a divergence of real GDP growth.

In 2012, Uruguay is expected to record real GDP growth

of 4.5 percent, while Brazil’s economy will expand by a

more modest 1.9 percent. Argentina’s attractiveness to

foreign investors declined further on account of higher

expropriation risks, rising inflation, tighter foreign

currency restrictions and greater trade protectionism.

Venezuela faced foreign exchange liquidity challenges

amid speculation of devaluation.

Ruling parties’ generally left leaning positions were further entrenchedThe traditionally liberal tendencies of Latin American

ruling parties were further entrenched in 2012. Hugo

Chavez won a third term as Venezuela’s president and

will serve until 2019 unless health problems (unspecified

cancer) intervene; at present there is no clear succession

plan for the Venezuela presidency. Argentina President

Cristina Kirchner’s increasingly protectionist policies could

not prevent public protests against rising prices, wage cuts,

and speculation surrounding a constitutional reform that

would allow Kirchner to run for a third term. And Brazil

President Dilma Rousseff suffered declining popularity

owing to a corruption trial (and subsequent conviction) of

a senior government official.

The commercial environment for key economies in the region worsened in 2012The World Bank’s Doing Business 2013 report revealed

that regional economies are varyingly open to foreign

investment. While Panama (up one place to 61) and

Mexico (up five places to 48) were more accommodating to

investors, Brazil (down 2 places to 130), Argentina (down 8

places to 124) and Venezuela (down one place to 180) were

less supportive in 2012.

Upgrades

Uruguay’s risk rating increased by one quartile to DB3b

in September on the back of improved growth prospects,

rising foreign direct investment, and improved portfolio

investment in the first three quarters of 2012. As such, its

foreign currency position improvement resulted in strong

import cover and lower payment risks.

Downgrades

Argentina’s risk rating was thrice downgraded: by two

quartiles DB5d in March; in May by a further two quartiles;

and finally by one notch in July to DB6c. The downgrades

came largely due to the imposition of import controls. In

addition, foreign companies grew more concerned about

rising restrictions that would affect repatriation of profits

and dividends. Trinidad and Tobago’s risk rating declined

by one quartile to DB3b in February mainly on account of

weaker economic growth. Private consumption remained

flat and business credit growth was anemic. Furthermore,

fragile economic growth among regional trade partners led

to generally weak intra-regional trade.

Regional Insights • Regional growth slowed as export demand

and domestic consumption moderated.

• Currencies rose as quantitative easing in the US created arbitrage opportunities.

• Various capital account restrictions helped to stem capital flight and conserve foreign reserves.

– Upgrades: Uruguay – Downgrades: Argentina (thrice),

Trinidad, and Tobago

Latin America

6

Regional ReviewMacroeconomic conditions remain challenging amid weak domestic demand and softening external demandLower contributions from net external demand, weak

business and consumer confidence (dampened by rising

unemployment rates and restrictive credit conditions),

and draconian fiscal austerity weighed heavily on Europe’s

economic growth throughout 2012. Despite a mild real GDP

expansion in Q3 (up 0.1 percent from the previous quarter),

most economic indicators deteriorated toward year’s end,

suggesting that current macroeconomic conditions remain

incapable of boosting domestic demand. Despite economic

weakness, inflation persisted throughout the year, propped

up by higher taxes in several member countries and higher

energy and other commodities prices, particularly food.

Particularly worrisome is the rise in unemployment. With

corporate profits squeezed, the EU unemployment rate

soared to a record 10.6 percent as firms shed jobs (especially

in manufacturing, financial services, and construction).

No upturn was anticipated in Q4, and GDP was projected

to shrink by 0.8 percent for 2012 as a whole. Payment and

credit risks continue to deteriorate.

The ECB’s focus has partially shifted from fighting inflation to supporting growth and financial stabilityWith a view to boosting economic growth, the ECB lowered

the key policy rate in July 2012 to an all time low of 0.75

percent to stimulate growth rather than fight inflation.

The Bank also provided €1 trillion in long-term financing

for the banking sector in December 2011 and February

2012. The cash infusion increased bank liquidity in ailing

periphery economies and stemmed further problems

in the financial sector. That said, ultra low interest rates,

predicted ECB bond purchases, and a potential new round

of quantitative easing in the US and other countries could

create uncertain EU price stability, exchange rate volatility,

and asset bubbles. Meanwhile, protracted turmoil

in Greece and other Eurozone economies has placed

downward pressure on the euro: the currency depreciated

by around 10.7 percent against the US dollar between

January 2010 and September 2012. The euro is further

expected to remain relatively weak in the outlook period.

Downgrades

The crisis in Europe was underscored by the high number

of downgrades throughout 2012. In January, D&B

downgraded the risk ratings by one quartile of Belgium

(to DB2d), Denmark (to DB2c), and Spain (to DB4d).

Luxemburg received a two-notch downgrade (to DB2c)

due to disappointing economic performance. In February,

worsening short-term economic prospects prompted a

one-quartile downgrade for France (to DB2b), Germany (to

DB1d), Hungary (to DB4d), and Slovenia (to DB2d). In June,

rising political risks prompted a two-notch downgrade

in Greece to DB5c and a one-quartile downgrade to the

Netherlands (to DB2b). In the July-October period, D&B

downgraded the risk rating of six countries (namely Czech

Republic to DB3c, Germany to DB2a, Romania to DB4c,

Austria to DB2b, Slovenia to DB3a, and Switzerland to

DB2a) on the back of disappointing economic trends

and sluggish domestic and external demand. Finally,

in November, D&B cut Cyprus’ country risk rating by

three notches to DB4c as persistent downbeat economic

developments overshadowed the island’s short-term

outlook.

Regional Insights • Domestic austerity measures, rising

unemployment rates, and slowing external demand dented growth in 2012.

• With payment and credit risk on the rise across most countries in 2012, D&B expects an increase in business failures.

• The risk of a Eurozone break-up is still limited, thanks to policy intervention. However, this outlook can change quickly.

– Upgrades: None – Downgrades: Belgium, Denmark,

Luxemburg, Spain, France, Germany (twice), Hungary, Slovenia (twice), Greece, Netherlands, Czech Republic, Romania, Austria, Switzerland, Cyprus.

Europe (EU + Iceland, Norway and Switzerland)

7

Regional ReviewThe majority of the economies in the region are slowing Strong economic growth was welcomed at the beginning

of 2012, supported by high key regional commodity

prices (oil, gas and metals), robust 2011 harvests, and

strong remittance flows from Russia to Uzbekistan and

Tajikistan, among others. However, economic conditions

in the three largest countries (Kazakhstan, Russia,

and Ukraine) fell prey to increased financial stress in

the Eurozone countries and higher global risk aversion.

Weakening demand from China also contributed to

the slowdown. While investment growth weakened,

expansionary fiscal policies and strong credit growth in

Russia and other energy exporters mitigated the negative

external impact on overall economic growth. Regional

growth is expected to average 4 percent in 2012 and 2013,

compared to 5 percent in 2011.

Global risks put pressure on the local currencies and the banking systems Strong account surpluses in energy exporting countries

from 2011 are poised to deteriorate in 2012 and beyond

as global downside risks unfold. Any deterioration of

external balances could exacerbate capital outflows and

pressure currencies. Currencies of countries that switched

to more flexible exchange rates–in particular Kazakhstan

and Russia–proved resilient to headwinds and appeared

better prepared for global risk aversion than during the

Great Recession. On the contrary, energy importers are less

resilient, especially those with large external financing

needs such as Ukraine. Meanwhile, Russia’s economic

slowdown has negatively affected the region, given its tight

linkages with other economies via trade, foreign direct

investment, and remittances. Banking systems in some

countries remain far from repaired. Ukraine still suffers

from significant non-performing loans, and Kazakhstan,

Kyrgyz Republic, and Tajikistan struggle against poor

capital adequacy ratios.

Risk of doing business in most countries is highDespite a difficult economic environment, some countries

managed significant achievement. Georgia joined the top

10 economies in the global ease of doing business ranking

according to the World Bank’s Doing Business 2013 report.

Nevertheless, overall regional trade continues to languish

against red tape, corruption, weak contract enforcement,

and the lack of a sound legal framework.

Upgrades

In January D&B upgraded Georgia’s country risk rating

by one quartile to DB5d, driven by an improving economy

and more promising relations with neighboring Russia.

Furthermore, Uzbekistan’s risk rating was upgraded to

DB5d from DB6a after continued improvements in the

country’s economic and financial environments.

Downgrades

The Eurozone crisis was partly to blame for two regional

downgrades. Serbia’s country risk rating was cut by one

quartile to DB5a from DB4d in October on the back of low

growth and a looming fiscal deficit. In the same month,

D&B downgraded Bosnia and Herzegovina’s risk rating by

two quartiles to DB6d from DB6b amid the deteriorating

economic and political situation.

Regional Insights • The global slowdown led to easing economic

growth in the region.

• Domestic demand became the main driver for the economic expansion.

• Expansionary fiscal stances and credit growth proved key components of domestic growth.

– Upgrades: Georgia, Uzbekistan – Downgrades: Serbia, Bosnia &

Herzegovina

Eastern Europe and Central Asia

8

Regional ReviewWith the exception of four downgrades, the Asian region presented stable prospects in 2012. However, pessimism about the short-to-medium term outlook increased, primarily for economies dependent upon Chinese and OECD demand. China and India, home to most of the Asia/Pacific region’s population, received downgrades to the DB4 range in Q2. Singapore and Hong Kong, the most prominent entrepôt economies and financial centres of Asia/Pacific, also garnered downgrades, underlining a shift in expectations.

A divergence between countries driven by domestic demand, those addressing the slowdown in Asia-Europe trade and export-oriented investment, and those struggling with classic liquidity and supply bottleneck problems of developing economies became clearer. Indonesia and Thailand saw private consumption and investment growth surpass 5 percent and 10 percent, respectively, year over year, in Q2 and Q3, while domestic and foreign credit rose strongly. Malaysia and the Philippines experienced less optimism on all counts, but remain part of a strong Southeast Asian development story that seems more sound than China’s.

In contrast, Taiwan, South Korea and Japan are in a more muted economic cycle. Taiwanese investment has dropped noticeably in recent quarters, and South Korea, New Zealand, and Singapore all posted at least a quarter of year-over-year decline in investment in 2012. Private consumption growth in these high-income economies will reach 1 to 2 percent in 2012.

Japan’s post-tsunami recovery stalled in Q4 2012, while Australia’s powerful resource sector-driven boom will likely fade as early as 2013, earlier than anticipated. Credit growth is likewise weak in most countries outside China and Southeast Asia. Vietnam is still recovering from its balance of payment problems and collapse in investment in 2011.

Central banks have been cautious in this context, with few changes to monetary policy outside of India and Vietnam, where calibrating policy has been harder. India tightened policy by 3.5 percentage points in April, only to relent by 50 basis points two months later; Vietnam has steadily cut its policy rate as it recovers from its macroeconomic near-emergency. In India and Pakistan, inflation and balance-of-payments pressures reflect structural problems.

With Asia-Europe trade due to be depressed for several quarters (European container imports fell an estimated 5 percent year over year, and Asian container exports fell 4 percent in Q3), the region must find new sources of economic growth beyond OECD demand for Chinese manufacturing goods and Chinese demand for upstream natural resources. Not all economies will succeed.

Upgrades

D&B’s July upgrade to Myanmar by two quartiles to DB6a reflected the opening of political and economic reforms and the consequent lifting of EU and US sanctions.

Downgrades

China’s one quartile downgrade to DB4a in July echoed the unravelling of its building boom as well as serious recessions in a range of industries, from steel-making to construction equipment to consumer electronics. In the same month a similar downgrade was applied to India, which reflected the marked stall in growth in Q2, with real GDP growth excluding the net effects of subsidies totalling under 4 percent year over year and investment growth falling to less than 1 percent.

The one quartile downgrade to Hong Kong to D2b in August reflected concerns for the mainland Chinese economy and the spending of China’s wealthy visitors to Hong Kong. Singapore’s July one quartile downgrade to DB2d reflected its high potential exposure to China and Europe.

Regional Insights • Chinese credit risks rose due to recession in

specific industrial sectors.

• India’s development model struggled against rising inflation and stalling investment.

• The end may have come into view for Austra-lia’s ongoing, still-intense resource boom.

– Upgrades: Myanmar – Downgrades: China, India, Singapore,

Hong Kong.

Asia-Pacific

9

Regional ReviewPolitical and security problems continued to threaten many countries across the region…Arab Spring and its consequent uncertainty dominated the risk outlook across the region throughout 2012. The situation is most serious in Syria, where the civil war has catapulted the country into the highest risk category. Furthermore, the war threatens to spill over into neighboring Lebanon and Turkey. Worryingly, Yemen and Bahrain are still experiencing high levels of protest, while the final outcome in Libya and Egypt is uncertain. Jordan and to a lesser extent Algeria remain at risk of increased levels of demonstrations against authoritarian regimes. Protests have impacted significantly on government budgets as spending on security and subsidies have risen dramatically, raising concerns in a number of countries about rising public debt levels. Meanwhile, different security issues in Lebanon, Iraq, Iran, and Israel continued to undermine these countries’ outlook.

…although the oil-rich states were able to buy support of their populationsOn a positive note, hydrocarbon-rich Gulf states, with the notable exception of Bahrain, have to a large extent been able to use their oil wealth to isolate themselves from global problems, thereby dissipating the socio-economic

tensions that drove the Arab Spring across the rest of

the region. However, in the longer term, these states must increase the non-hydrocarbon sector and control government spending in order to stop deteriorating ratings.

Commercial risks remain challenging across most of the regionThe commercial environment remained challenging across most of the region. Of the 18 countries ranked by the World Bank in its annual Doing Business Survey (Libya is not scored), half are ranked in the bottom 50%, with four in bottom 25% (Syria, Iran, Algeria and Iraq). Only three countries improved their ranking in the year (Egypt, Saudi Arabia, and the UAE), two remained static (Oman and Qatar), while the rest deteriorated, with Yemen falling 17 places to 118 and Syria 7 places to 144.

Upgrades

The only country to experience an upgrade in the region was Libya. With the end of the civil war and the consequent improved security and political position, D&B upgraded the risk rating by one quartile to DB6d.

Downgrades

In January D&B downgraded four regional countries by one quartile each as a result of deteriorating political and/or socio-economic conditions. Egypt was downgraded from DB5c to DB5d as it became obvious that the ouster of President Hosni Mubarak resulted in a number of groups competing for power, including the military, the moderate Muslim Brotherhood, radical salafists and young secular liberals who had been the prime movers behind the revolution. Meanwhile, Lebanon was downgraded as the civil war in Syria threatened to spill over into the sectarian-divided country; a further one quartile downgrade to DB5c was implemented in September as the situation deteriorated further.

Jordan also experienced two separate one-quartile downgrades (in January and in November) to DB4c as worsening economic conditions brought large-scale demonstrations against the government, threatening to bring the Arab Spring belatedly to the kingdom. Finally Kuwait was also downgraded in January, resulting from increased tensions between parliament and the government that forced the resignation of the cabinet.

Regional Insights • Civil war in Syria threatens to spill over into

neighboring countries.

• Political risks related to the Arab Spring re-mained high in Bahrain, Egypt, Libya and Ye-men, and threaten Jordan and Algeria.

• Oil-rich countries used government spending to boost the economy and reduce the threat from the Arab Spring.

– Upgrades: Libya. – Downgrades: Egypt, Jordan (twice),

Kuwait, Lebanon (twice), and Syria.

Middle East and North Africa

10

Regional ReviewGrowth held up well across the region, particularly in the low income countriesDespite the global slowdown prompting weaker primary commodities markets, growth held up reasonably across the region. In particular, low-income countries proved more successful than the developed economies of Nigeria and South Africa, with their stronger dependency on the European economy. Investment in the resource sector in countries such as Sierra Leone, Mozambique, and Ghana boosted growth.

Political and security issues in South Africa, Nigeria and the Democratic Republic of Congo undermined the risk outlookWorryingly, the hike in global wheat prices in Q4 will fuel increased food prices and could create socio-economic tensions in low-income countries. Political and security issues are already high in a number of countries, including the two regional powerhouses, South Africa and Nigeria. The former experienced a wave of strikes in the latter part of the year, starting with mineworkers and spreading to other industries. In addition, political tensions have increased ahead of elections set for December 2012, with the ruling ANC party facing high levels of discontent. Sectarian violence flared sporadically in Nigeria,

undermining the risk outlook. Meanwhile, renewed rebel activity in the later part of 2012 in the Democratic Republic of Congo, allegedly supported by Rwanda, could destabilise neighboring countries. Furthermore, arms have flowed out of Libya since the overthrow of Col. Gaddafi in 2011, threatening the stability of drought-stricken countries in the Sahel.

The commercial environment remained challengingAccording to the World Bank’s annual Doing Business Survey, the commercial environment remained challenging across the region, with the notable exception of Mauritius (ranked 19, up from 24). Of the 22 regional countries covered by D&B, 17 are ranked in the bottom 50 percent, of which 12 are in bottom 25 percent. In addition to Mauritius only three other countries improved their ranking in the year (Angola up to 2 places to 172, Sierra Leone up 8 places to 140, and South Africa up two places to 39), two remained static (Nigeria, 171 and Cote D’Ivoire, 177) while the rest deteriorated.

UpgradesD&B upgraded Angola’s risk rating by one quartile to DB5b in January on the back of a number of positive economic developments, including lower inflation, reduced sovereign risk, investment in the power sector, and increased oil production. Meanwhile, the government has stepped up its efforts to diversify away from oil exports. This was followed in March by a one-quartile upgrade to DB6a in Sierra Leone as economic conditions improved owing to the substantial increase in activity at the country’s two iron ore mines.

DowngradesThree countries were downgraded by one quartile each at the start of 2012. Botswana’s country risk rating fell to DB3b amid increased socio-political tensions and an uncertain economic outlook in the face of rising inflation. Mauritius’ rating also fell to DB3b on fears of growing political uncertainty, instability, and a weakening economic outlook. Zambia’s rating reduction tallied DB4d as concerns grew for the crucial copper sector, and uncertainty remained about the increased level of royalties the government may charge mineral producers. In November, South Africa was downgraded by one quartile to D4d amid a wave of industrial strikes that spread from the mining sector to other industries, causing a slide in the rand against the US dollar.

Regional Insights • Investment, particularly from China, in the

resource sector continued to boost growth in a number of countries.

• Security and political issues adversely affected risk ratings in a number of countries, including the regional powerhouses South Africa and Nigeria.

• The commercial environment remained chal-lenging across the region, with the notable exception of Mauritius.

– Upgrades: Angola, Sierra Leone – Downgrades: Botswana, Mauritius,

South Africa, Zambia

Sub-Saharan Africa

11

D&B Risk Ratings The DB risk indicator is divided into seven bands, ranging

from DB1 through DB7. Each band is subdivided into

quartiles, (a-d) with an ‘a’ designation representing slightly

less risk than a ‘b’ designation and so on. Only the DB7

indicator is not divided into quartiles.

Our Team and ProductsD&B relies a team of trained economists dedicated to

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at press time. For the most up-to-date information on any

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Risk & Payment Review. For comprehensive, in-depth

coverage, refer to the relevant country’s Full Country Report.

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D&B is the world’s leading source of commercial information and insight on businesses, enabling companies to Decide with Confidence® for 171 years. D&B’s global commercial database contains more than 215 million business records. The database is enhanced by D&B’s proprietary DUNSRight® Quality Process, which provides our customers with quality business information. This quality information is the foundation of our global solutions that customers rely on to make critical business decisions every day around the world.