The other main emerging economies – South Africa, Brazil, India and Indonesia – appear to be particularly susceptible to risks linked to capital outflows. These vulnerabilities result from similar factors at play as in Argentina and Turkey: developed capital markets, current account deficits and political environments that are likely to fuel caution from the markets, elections scheduled before the end of the year or in 2019. Nevertheless, risks of contagion are somewhat mitigated, due to lower dollarisation and overall high levels of foreign currency reserves in these economies.
Some of the smaller emerging countries should also be watched. This quarter, Coface has downgraded the country assessments for Pakistan and Nicaragua to Pakistan is facing default and a sharp depreciation of the rupee, while Nicaragua is undergoing a political crisis.
In contrast, business risks are improving in Central Europe and the CIS countries. Croatia’s assessment has been upgraded by a notch, to A4. The country is no longer under EU excessive deficit proceedings and is benefitting from an environment of dynamic household consumption. Slovakia (now A2) has registered a steady improvement in business insolvencies (-27% in 2017) and an acceleration in investments in its automotive industry. Armenia has been upgraded to C and is benefitting from the economic recovery in Russia (which represents 25% of its exports).