![]() ![]() While some risks are more cyclical in nature, others may be part of more broad-based secular trends. banks, any loss of confidence or release of animal spirits increases the risk of deposit flight, threatening to turn a local banking crisis into a global one. As witnessed in March, with the highly publicized failure of a number of U.S. ![]() The resulting swings in asset prices could also have potentially dangerous knock-on effects across the banking system. We’ve already seen a number of protracted debt re-negotiations for countries at heightened risk of debt distress, putting many low-income markets on the cusp of default. This increases the risk around a spate of a sovereign debt crises. Government debt has also ballooned in recent years, as fiscal authorities helped cushion the blow of the pandemic, keep up with rising health-care costs, boost defence spending in response to geopolitical uncertainty and confront new challenges, like climate change. While some of this may be part of a healthy correction, the adjustment could nevertheless prove messy. While not our base case, such a scenario could also expose those households and businesses that over-extended themselves during the last decade of excessively “cheap money.” As interest rates and bond yields trend higher and post-pandemic liquidity is reduced, borrowers will experience credit pressures, increasing the risk of a wave of corporate defaults. According to our calculations, this could lead to a permanent loss of between 1% and 2% of global economic output. It could even bring about a deep global recession, especially if lenders tighten their lending standards even further in response. The dramatic increase in central bank policy rates over the past year and a half, together with associated financial market stresses, will reduce the flow of credit into the system over the next several quarters. Instead, the biggest risks facing Canadian exporters largely stem from the soft patch confronting the global economy, as it seeks to put the distortions caused by the COVID-19 pandemic firmly in the rearview. That said, any escalation of the conflict would certainly change the calculation here. Additionally, while food security remains front and centre for many food importers, the United Nations Food and Agriculture Organization Food Price Index is down 25% since last year. In our most recent Trade Confidence Index ( TCI), only 30% of respondents still identified those challenges as impediments to their business. ![]() While still very much on the radar, the predominance of these risks has diminished, as Canadian exporters adapt to the enduring impacts of the conflict. While protecting your business from all risk is neither possible nor even desirable, planning around those risks that are most plausible and impactful can help fine-tune your risk management systems and better position you for success.Ī year ago, we were grappling with the economic and geopolitical fallout from the war in Ukraine, including global food insecurity and the widely disruptive energy crunch. Each year EDC Economics publishes its views of the top risks facing Canadian exporters over the next 12-18 months. ![]()
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