7 Riskiest Economies in 2010

Though graphs today are screening gradual increase in U.S. deficit, there isn’t any serious concern among the treasury holders. The debt will not be defaulted. According to Moody’s, U.S. still holds the AAA ranking in the credit rating list. However, this definitely doesn’t mean that the world economy is perking up.

Few countries around the world are constantly being hit by economic crises and debt deposition. Markit, a financial data analysis company, provides daily price of credit-default swaps. These are nothing but contracts between two parties that serves as an insurance against debts accumulated by government and major companies. Whenever, the price of a government credit-default swap surges very high, it indicates that the economic stability is risky and can be soon bankrupt.

However, we cannot depend completely on the credit default swap cost because the healthiness of any economy doesn’t purely depend on this rate. Recently, this swap price of US surged up to 70 percent, highest overall but nothing really changed. However, Moody’s scrutinize all the aspects of world economy and listed down 7 countries the that has overall negative outlook along with very high credit-default swap rates. Hence, these seven countries top the list of riskiest economies around the world as they face the peril of sliding down further.

1. Greece

   With the end in five year reign of New Democracy Party in October, the debt burrow seems to be deepening for Greece. Things weren’t better then, and it only got worse, when later the European Commission declared that 14% of Greek GDP was its fiscal deficit. This figure is almost twice of what the former Greek government had announced. According to Moody’s credit rating, Greece has acquired an A2, and it also mentions that the economy can slip down further.

   Previously, Italy had worst budget problems. However, Greek has almost surpassed the worst country, now to become the most awful economy in Europe. Recently, Eurostat, the statistical arm of EU warned people not to invest much in Greece by mentioning that the country’s budget is still untrustworthy. However, investor’s reaction to this news was quite striking. The cost of insurance used to cover the sovereign debt surged 156% since past 3 months.

2. Portuguese

   The traditional land of Portuguese is buried deep with financial debts. It seems that the Portugal government has considered replacing all the soccer stadiums with wealth building corporations and business development centers to generate some revenue. According to European Commission, the deficit of Portuguese is around 8% of its Gross Domestic Product. Again, Moody’s fears that the economy is still struggling to perk up and may collapse again. Very similar to Greece, the economy of this country is dying gradually. However, this can be quite a controversial topic because many rating agencies term Portuguese not as bad as Greece.

3. Jamaica

   It’s quite easy to believe that Jamaica is quite safe and economically stable, if we compare it with the neighboring Haiti. However, it’s becomes difficult to comprehend that Jamaica is one of the worst financially affected country in the world. According to Moody’s, Jamaica is rated as Caa1. For those you don’t know much about this rating, this one of the worst rating that can be assigned to any country. Recently, falling short of revenue, the Jamaican government asked for a $1.3 billion credit from International Monetary Fund. Jamaica desperately needs this loan to repay the investors and debtors. The annual cost incurred to insure the $10 million debt of Jamaica was over $1 million, which is among the world’s most expensive insurance.

4. Ireland

   Once known for its tremendous economic growth and success, Ireland is now facing the financially ugliest period ever. According to the Finance Minister of Ireland, Brian Lenihan, the months between mid-2008 and late 2009 were those of inexorable financial murkiness. The bubble of rising house prices, akin to US, exploded and the GDP plunged 7.5% in 2009.

   Although this country faced one of the worst economic crises, it still managed to get Aa1 rating by Moody’s. This rating means Ireland is still very firm and the trustworthiness in quite intact. Another insurance rating agency, A.M. Best, classifies Ireland in the ‘moderate’ risk category, highly due to the awful financial problems it faced in 2008 and 2009. However, both the rating agencies confirm that there wouldn’t be any positive economic growth till 2011.

5. Vietnam

   Akin to few other developing countries, the economy of Vietnam grew despite the global recession in 2008. However, it gradually plunged in 2009. The GDP grew by 5.32% in 2009 as compared to 6.18% in preceding year. However, the global cues are getting stronger, but the economic infrastructure of Vietnam seems to be weakening. Most of the investors confirm that in 2008-09, the inflation rate rose to over 25%, which is quite alarming. A.M Best places this country as riskiest among all, and says the economy has unwieldy government. It now costs around $240,000 to insure $10 million of debt.

6. Bahrain

   The fall of mighty Dubai was quite shocking news near the end of 2009. The entire oil-dependent bunch of Middle East countries was affected by the plunge of Dubai’s financial firmness. The island of Bahrain couldn’t lug the financial burden and it gave up. Since last 3 months, the CDS spreads surged over 21%. The economy of Bahrain was highly depended on oil trade and the rates chopped down in the past months which led to piercing of its economy.

   60% of government earnings and 25% of its GDP was generated from oil. The prices are still not stable and are expected to plunge further. It could have affected the entire Middle East bunch. However, every other country has enough liquid assets that can be used to fix the holes in their economy, except Bahrain, which has hardly any assets left. So, the economy can slid further.

7. Hungary

   Hungary is one of the worst hit economies in Central and Eastern European region. However, the financial conditions improved recently due to two factors. First, due to the support provided by EU and IMF and second, because of the reforms provided by the Prime Minister who joined last year, Gordon Bajnai. However, experts predict that all the reforms are a temporary fix and the world will witness this economy shrinking again ion 2010. In last three months, the CDS spreads increased by 17%.

Figures are accurate but the predictions aren’t always true. That’s the only optimistic sentence I can manage to provide. A note for global investors: It’s wait and watch time for next few months. If you can’t, at least stay away from these economies.