Turbulence, unrest and stability in developing economies is set to continue and even deepen in 2016, according to a political risk outlook from Verisk Maplecroft.
High levels of corporate and private debt – reaching 100% of GDP levels in some developing countries – will lead to more insolvency and bankruptcies in 2016, suggested the report.
This “debt overhang” will delay recovery from the slump facing emerging economies, said the study.
For re/insurers, the effects may hit performance of specialty lines, such as political risk, trade credit, political violence, war and terror, as well as slowing insurance penetration levels more broadly within those markets.
Government balance sheets are being squeezed, leading to cancellations of infrastructure projects planned in more prosperous times.
China's economic slowdown and pullback of its overseas investment, combined with a flight of capital back towards developed markets, has contributed to reduced project financing, with knock-on effects for re/insurance business.
With oil likely to stay below $60 per barrel – two thirds cheaper than two years ago, many SubSaharan countries dependent on energy exports will face deep recession and fiscal problems.
War and terrorism pose problems, particularly for developing countries in the Middle East and North Africa, where the military campaign against IS continues, terror attacks are widespread, and a flare up of regional rivalry between Iran and Saudi Arabia – borne out in proxy conflicts across Iraq, Syria and Yemen – adds another aspect to the region’s instability.
Russia, which has embroiled itself in wars in Ukraine and Syria, also faces severe recession, caused by reduced energy revenues and sanctions imposed by the West, which could also create conditions for Vladimir Putin’s eventual removal from power, suggested the report.
Corruption, rife in Russia as well as Latin America, also continues to plague emerging economies, while reform agendas in countries such as India and Indonesia are at risk, said the paper.
“In several major Latin American countries, high-profile corruption cases will continue to erode public support for incumbent governments. Brazil’s President Dilma Rousseff faces impeachment proceedings for violating a key fiscal responsibility law and corrupt practices,” said the report.
“Although the government’s majority in the Senate means that Rousseff is unlikely to be impeached, heightened opposition to the president in the lower house will seriously curtail her ability to push through new legislation in 2016,” the study added.