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- iHaveNet.com: Economy
by Matthew Bandyk
While the U.S. deficit might be increasing, there is no serious
concern among holders of U.S. treasuries that the country will default
on its debt. Despite federal spending consuming 27.2 percent of gross
domestic product in 2009,
the United States
maintains a perfect Aaa rating from the credit rating service
This riskiness has been quantified through data provided by Markit. The financial information company provides daily pricing on credit-default swaps, contracts between two parties that provide a kind of insurance on corporate and government debt. When it becomes more expensive to buy a credit-default swap on a government's debt, it generally means that investors see the country's economic situation getting riskier. The countries on this list are ranked by the percentage increase of the cost of their credit-default swaps over the past three months.
But a large increase in the cost of credit-default swaps alone does
not mean that a country is especially risky. Swaps on U.S. sovereign
debt have increased about 70 percent over the past three months -- one of
the highest overall, according to Markit. Some countries can maintain
their credit reputation through other factors. For example, the
United Arab Emirates has seen the cost of its
credit-default swaps explode in recent months. Late last year,
The following countries have both a negative outlook from
1. Greece
Greece's economic problems contributed to the ousting of the center-right New Democracy party in elections last October, ending a five-year reign.
From the rest of the world's point of
view, things only got worse for Greece when, later
that month, the
Two months later,
Greece is now on track to
surpass
Italy
as the
The reaction from investors to all this bad news has been striking: Greek CDS spreads (the cost of insuring its sovereign debt) increased about 156 percent in the last 3 months, the largest increase of any country. It currently costs about $315,000 annually to insure $10 million of Greek sovereign debt over five years.
2. Portugal
Just how deep in the red is Portugal?
Several Portuguese cities are considering razing soccer stadiums in this football-loving country in order to replace them with business developments that might generate more revenue.
3. Jamaica
The economy in Haiti has essentially collapsed, which might make its neighbor Jamaica look normal. But by noncatastrophic standards, Jamaica has some of the worst economic problems in the world.
4. Ireland
Ireland was one of the biggest economic success stories of the past few decades. But, in the words of Irish Finance Minister Brian Lenihan, the period from the middle of 2008 to the end of 2009 was one of "unrelenting economic gloom."
Like
the United States,
Ireland had
a housing price bubble that popped, and Irish GDP fell 7.5 percent in
2009. Last summer,
5. Vietnam
Like many developing countries, Vietnam's economy has grown despite the financial crisis. But Vietnam's growth slowed in 2009, with GDP rising 5.32 percent, compared with 6.18 percent in 2008.
Weakness in the country's economic infrastructure remains despite reform; many investors remember that in 2007 and 2008, annual inflation rates in Vietnam were more than 25 percent.
A.M. Best places
Vietnam in the riskiest of its five tiers. This
tier indicates a "legal and business environment with limited or
nonexistent capital markets." Vietnam's financial
system is particularly troublesome for investors because "cumbersome
bureaucracy" and state control in the form of the
6. Bahrain
When Dubai, part of the United Arab Emirates, went through a debt crisis at the end of last year, it sent ripples of financial worry through the oil-dependent Middle East.
One country that fell victim to these concerns was the tiny Persian Gulf island nation of Bahrain, where CDS spreads have increased 21 percent over the last three months.
Some of this reaction is simply
"guilt by association," as Markit analyst Gavan Nolan
has written. But Bahrain also faces some
fundamental economic problems because of falling oil prices, which
explains why
Over 60
percent of Bahrain's government revenue and a
quarter of its GDP come from oil.
7. Hungary
The global recession hit Eastern and Central Europe very hard, and Hungary has been one of the worst cases in that region.
The economy has improved in the last year, partially because of support from the IMF and the EU and partially because of reforms instituted by the government of Prime Minister Gordon Bajnai, who took office last year. Some of the economic reforms might make Hungary's situation look worse than it really is.
Over the course of 2009, real wages in Hungary dropped nearly 5 percent. Much of this decrease is explained by the government's freeze on wages for public-sector workers. Economists expect Hungary's economy to contract again in 2010. The uncertainty has led Hungary's CDS spreads to fluctuate in recent months, but they have increased more than 17 percent over the past three months.
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Global Economy: 7 Countries Spooking Investors | Matthew Bandyk