The international environment can be expected to remain favourable for the emerging countries in 2006 for the fourth consecutive year, with regard to global demand, commodity prices and financing sources. Growth has been at least twice as fast in the emerging countries as in developed countries since the global industrial recession in 2001 and continues without either worrisome macroeconomic imbalances or blatant bubbles in asset prices or credit despite the inflow of foreign capital. In contrast with the 1990s, the major developing countries are unlikely to fall victim - at least in the short term - to a sudden cyclical slowdown or a financial crisis of internal origin (1), barring a socio-political upheaval. This said, their commercial and financial integration has gathered pace in recent years, which makes them more vulnerable to the global cycle than in the past.
The traditional components of the country risk - the sovereign risk and the non-transfer risk - are gradually declining on average. The liquidity and solvency ratios have improved significantly, raising visibility in the short and medium term, even if visibility in certain zones is lowered by rising social, political or geopolitical uncertainties. The credit risk of banks and corporates also continues to diminish, particularly in countries which are gaining ground in international trade. Nevertheless, liberalisation and financial internationalisation are increasing the weight of foreign-currency-denominated corporate debt, whereas companies are not always prepared for the possibility of exchange rate shocks (particularly in Central Europe, India, Russia and Turkey).
While on the whole favourable, this new landscape nevertheless raises questions about the trend of global risks in view of the following observations: many developing countries are simultaneously experiencing improvement of macroeconomic or financial indicators, socio-political tensions are mounting, particularly in zones on the rims of globalisation, and trade integration is likely to strengthen the correlation between the economic cycle of developing countries and the developed countries.
(1) Exceptions: Hungary and to a lesser extent Turkey, which are beginning to show overheating risks.
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