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Country Risk SACE - 25 January 2018

2018 SACE Risk Map. Global context is recovering: decline in payment default risks; political instability and violence the unknown in 2018

SACE, which with SIMEST forms the export and internationalization hub of the CDP Group, released the new edition of its Risk Map, presenting the expected context in which Italian companies will be operating in its Focus On “2018 Risk Map: Adelante con juicio”.


The picture painted by the new study is an overall improvement in risk levels spurred by a recovery in global growth, with positive effects on international trade and the Italian economy, particularly on exports, which registered an unexpected leap in 2017.  A few factors of instability remains:  high levels of debt and uncertainty over the recovery of the commodities cycle are weighing heavily especially on the emerging economies, while instability and political violence are spreading in new areas of the globe. Italian companies will therefore be operating in an improved but still fragile context, in which they will have to move with caution, diversifying geographical areas and arming themselves with risk mitigation instruments.


“2017 was a positive year for the global economy, which also drove recovery in international trade – explains Beniamino Quintieri, Chairman of SACE –. We foresee continuing growth in 2018 but not without risks. It will be important to closely monitor exogenous variables such the evolution of U.S. relations with Russia, the Middle East, and North Korea, the policies of the Chinese Government, and the outcome of few important election campaigns that might destabilize regional balance in Latin America and AfricaExport and internationalization will continue to play a key role for our economy, but recent experience has taught us not to underestimate any indicator. It becomes increasingly important, therefore, for companies to recognize and assess the risks, wisely diversify their export markets, and utilize the coverage instruments provided by SACE SIMEST”.


Goldilocks economy: are we in 2007 again?


Global growth consolidated in 2017 (+ 3.6% expected), with the emerging economies acting as the engine (+ 4.6%), and with a net improvement in the advanced markets as well (+ 2.2%). This favorable economic context reflected in the dynamics of international trade, which has begun to grow again at a sustained rate (+ 4.5% in the first ten months of 2017), after the slowdown in the post-crisis period. Positive effects have also been shown in Italy, particularly in our exports (+7.8% in the first 11 months of 2017).


Ten years since the outbreak of the global financial crisis, a few indicators seem to recall the positive pre-crisis dynamics:  high growth, controlled inflation, favorable financial conditions, low market volatility, and "inversion" of the commodities cycle. At these conditions, the world economy will remain solid only in case of moderate growth, neither too strong nor too cautious. Characteristics that remind us of the so-called Goldilocks economy, from the Nordic tale where the young Goldilocks states that she prefers her porridge at the right temperature, neither too hot nor too cold.


In this context, we must not underestimate some latent risks:

  • high levels of debt, especially in the emerging countries
  • ·volatile commodity prices, which impact economic solidity in the economies of the exporting countries
  • widespread political instability.


Credit risk indices are improving


Observing the SACE Map, a general improvement in payment default risk is evident. Out of 198 countries analyzed, 32 have improved their SACE risk status and 156 have remained stable (in total they represent 91% of Italian exports or € 380 billion). Ten economies had declining risk status, representing € 38.5 billion in exports and 9% of the total.


cs risk map 2018



The most significant upgrades concern primarily the advanced economies (4 points on average): Portugal, Iceland and Slovenia show an above-average positive change. The emerging economies include upgrades of Egypt, Russia, Brazil, India, and Argentina (the last still at high risk levels, however). The downgrades include China, over concerns about its high debt level, and South Africa, with an economy that remains stagnant and with uncertainty over the election of a new president. 


Beware of political risk


In the scenario for 2018 indicated by the Map, political risk also improved worldwide, particularly the risk of confiscation and expropriation (decline from 52 to 50) and lack of transferability and convertibility (improved from 47 to 46). These improvements partly reflect the economic-financial progress of countries that improved their attractiveness to foreign investors (like Colombia and Vietnam) and partly the price increase in crude oil, which has had a positive impact on a few oil-based economies (Nigeria, Azerbaijan, Uzbekistan).


The risk of political violence, however, is the only category showing a slight global downturn, from 44 to 45. These are some areas where this risk remains critical (Afghanistan, Libya, Pakistan, and Venezuela). The Middle East and North Africa (MENA) and Sub-Saharan Africa remain the most unstable areas, with an average of 58/100 and 56/100, respectively. In the MENA area, in addition to existing conflicts (Syria, Yemen), there are new potential breeding grounds (Qatar, Lebanon, Iran), while in Sub-Saharan Africa the high growth potential of the continent suffers the negative effects of critical chronic situations (Central African Republic, Democratic Republic of the Congo, South Sudan) and new terrorist threats. The election cycle starting in Latin America (Brazil, Colombia, Mexico, and Venezuela) might lead to situations of instability with the rise of populist forces.


The new trend, initiated in 2017 and likely to continue this year, regards the increased risk of political violence in a few countries considered "above suspicion". In fact, the risk indicators show a rise in political violence in countries not characterized by systematic conflicts but where the presence of religious, social and political tensions have caused a deteriorating level of security (the Philippines, Bangladesh, and India, but also Armenia, Azerbaijan, Serbia and Kosovo). 



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