Ever wonder if today’s world is riskier than ever before? It certainly feels that way, especially during those periods where we endure an almost daily barrage of negative news. To put this in perspective, EDC Economics periodically assesses the top 10 country risks facing Canada. This commentary is a check-in about what’s changed in the world since our last assessment, highlighting a select number of tail risks you should consider.

For starters, the whiff of increased protectionism and regulation across the southern border is undeniable. The upcoming US presidential election with its Fortress America discourse has propelled this issue into our Top 10. Although our team’s latest scenario analysis on the elections indicates a high probability that Congress would constrain either candidate from pursuing the most extreme campaign promises on the economy and trade, the US is moving in the overall direction of greater isolationism. For Canadian companies this will likely entail more aggressive US action against perceived trade imbalances, but stops well short of renegotiating NAFTA. At greater risk is a Congressional nod to the Trans-Pacific Partnership, given the election campaign’s anti-trade sentiment. The US elections look to have accelerated the populist anti-globalization movement, with issues like income inequality taking center stage. It has also magnified the rise of political risk in the developed world.

EU collapse. Over the years, the Continent has moved almost without interruption from one crisis to another. Just as growth in this troubled zone finally looked ready to turn a corner, on June 23rd Britain shocked financial markets by voting to leave the European Union. While the final economic and political fallout will depend on whether it will be a “hard” or “soft” Brexit and when, the uncertainty has dented the near-term outlook. This is already having an impact on investor plans and is expected to lower Canadian UK-bound exports by as much as 8 per cent in 2017. The vote has also crystallized Continental skepticism toward the supra-national institutions created to cement stronger cross-border ties, evoking greater nationalism. This sentiment may well complicate ratification of multilateral trade deals such as the Comprehensive Economic and Trade Agreement (CETA). The agreement, if ratified at the Canada-EU summit in October, would significantly increase Canadian exports to the EU.

If this weren’t enough, an Italian banking crisis poses a further threat to the eurozone. The IMF estimates Italy’s bad loan pile at €360 billion – about a third of the eurozone total. Weak banks have continued to lend to weak companies in a stagnant growth environment, and banks now require immediate capital injections to restore investor confidence. However, current EU banking rules forbid direct state assistance. Prime Minister Renzi, already pressured by the upcoming referendum on his constitutional reform package, is running against the clock to find a solution. If it ends badly, this risk could be more potent than Brexit.

The risk of Chinese economic crisis remains one of the highest in our view, even if news coming out of Beijing is less foreboding. The risk remains centered on the Communist Party’s difficult quest to balance short-term growth with medium-long term transformation of the economy. The government’s continued use of monetary and fiscal stimulus to buttress growth is also increasing financial sector risk. Given the broad global impact of a Chinese crisis, we’ll be keeping a close eye on this one.

Rounding out some of our top risks is our longstanding concern of a Japanese debt bomb. It has been evident for some time that Japan’s public debt, now north of 250% of GDP, is unsustainable and a change in market risk perceptions over the medium term would have significant impacts on Japan’s large financing needs. As noted in the spring, a financial crisis in Japan would have global implications. With no new and conclusive policy moves expected in the foreseeable future, the likelihood of this risk will continue to grow.

The bottom line? In the post-recession period, numerous heightened country risks are the unfortunate norm. Exporters need to understand both the negative impacts of increasingly complex risk events, but also the opportunities they present. The Country Risk Quarterly – the latest issue – was created expressly for this purpose.

This was written by Ian Tobman, EDC's Country Risk Analyst.