BRICS are not imune to a eurozone collapse

Although BRICS are not at the top of the ranking of countries most exposed to Euro, they are not immune to a eurozone collapse. According to a study by the British consulting group Maplecroft, Brazil, Russia, India and South Africa can be all classified as “high risk” countries with any worsening of the Euro crisis. In the BRICS’ group, China is the only one which was rated as “medium risk”.

The study ranked 169 countries outside of the eurozone according to their level of trade and foreign direct investment with the Euro area. Bank claims of eurozone countries and domestic economic resilience indicators—such as fiscal balance, public debt, levels of inflation and foreign reserves—were analyzed as well. To measure how exposured a country is, Maplecroft elaborated an index and rated the countries in five categories:  “extreme risk”, “high risk”, “medium risk”, “low risk” and “no data”.

To Maplecroft, the BRICS economies represent a potential offset to the negative impact of the euro zone economic crisis due to their importance in global markets. “Nevertheless, these economies are not fully insulated from the slowdown themselves due to trade and investment relations with Europe and an escalating eurozone crisis could further exacerbate current domestic slowdown in growth forecasts across the BRICS”, says the study.

According to Maplecroft, South Africa is rated in the 49th index position followed by Russia, in the 50th. Brazil is in the 62nd, while India is classified in the 85th. They are all classified as ‘high risk” countries in the index. On the other hand, China (112) is rated as “medium risk”.

United Kingdom tops the ranking of countries most exposed to the Euro crisis due to the UK’s high level of economic integration with the countries using the Euro. Besides, the country has a lack of domestic resilience to an economic slowdown.

With the International Monetary Fund (IMF) predicting GDP growth of just 0.7% in 2013, the outlook for the eurozone remains precarious and any further slowdown for the region would have the most severe impact on United Kingdom struggling economy, says Maplecroft. According to the study, a potential collapse of large euro economies such as Spain or Italy would reduce the UK’s trade by approximately 7% and prompt losses around £95bn (7% of GDP) in Britain’s banking sector.

The UK, along with Poland, Hungary, the Czech Republic, Mozambique, Sweden, Denmark, Morocco and Côte d’Ivoire, are among 17 countries classified at “extreme risk” by Maplecroft’s Eurozone Exposure Index (EEI). The United States is rated as a “high risk”, while Canada is considered a “medium risk” country to any worsening of the crisis.

According to Maplecroft, African nations also emerge among the most at risk in Maplecroft’s study, with Mauritania (5), Mozambique (6), Mauritius (7), Morocco (12),  Côte d'Ivoire (16) classified at “extreme risk” due their high trade dependence with the euro area and low resilience against global economic slowdown.

Maplecroft's Eurozone Exposure Index 2012


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