The world country risk index ( The world country risk index is the average of the @rating country ratings weighted according to each country's contribution in terms of world output. The base index is the average level of world risk in 2000.) has fallen under the effect of the upgrading to A1 of the rating for German businesses. Despite this improvement, the European Union risk index remains above that of industrialised countries as a whole. The emerging countries risk index is also showing glimmers of improvement. This is due mainly to the upgrading of the ratings for Algeria, Bulgaria and Romania from B under positive watch to A4. The rating for the Philippines has been upgraded to positive watch, while in the case of Sri Lanka it has been downgraded to negative watch due to the country's deteriorating financial and political situation. At a higher risk level, the ratings for Mongolia and the Zambia have also been upgraded from D to C.

The end of 2005 has been marked by a return to rising oil prices. The price for Brent again approached $60pb with the average price since the beginning of the year being $54.4pb and representing a 42% rise compared with 2004. These high prices have given rise to a major transfer of resources from importing countries to exporting countries, widening external account deficits or reducing surpluses for the former and improving up the financial situation of the latter.

However, these tensions have not had a major impact on activity. In fact, there has only been a moderate slowdown in world growth over 2005. In line with our expectations, business solvency has remained good. With a comfortable financial situation after an excellent 2004, companies have been able to withstand heightened pressure on their margins. Productivity gains achieved by way of numerous restructuring and relocation plans have made it easier to absorb input price rises. Nevertheless, certain sectors have experienced more difficulties, particularly those activities with greater exposure to competition from emerging countries or being high oil and raw materials consumers.

In 2006, the most probable scenario provides for a GDP increase of a magnitude similar to that of 2005 and still driven by dynamic American and Chinese demand.
Oil prices should settle. Following several years of sustained rises, the expected fall in other raw materials prices will be limited. The progressive tightening of American interest rates should neither curb growth in industrialised countries nor provoke sharp tensions on financial markets where an abundant supply of liquidities remains. Accordingly, emerging countries should still benefit from good financing conditions, insofar as their rigorous management is increasing market confidence and contributing to keeping spreads at a low level.

Nevertheless, this scenario is not without risks. In a context of high geopolitical tensions, the risk of a further long-lasting rise in oil prices cannot be discounted. Fears persist that the size of America's current deficit could result in a sharp adjustment in interest rates or in the dollar exchange rate. A bursting of the property bubbles in the United States or in certain European countries would not fail to have a negative impact on household consumption. In the same manner, the risk of a brutal downturn in activity in China cannot be excluded.

However, beyond these risks, businesses will remain challenged by high pressures on their margins. Competition will remain lively and raw material and energy prices will remain high, while financing is more expensive. As it is, their profitability has already been tested in 2005 and consequently the race to gain market shares is increasing their vulnerability to possible shocks.

■ In the United States, despite a slowdown, we will still see healthy growth in 2006. Despite the rise in interest rates, internal demand will continue, supported by the robust levels of investment in both the public and private sectors offsetting household consumption constrained by high debt levels. However, the strong export performance will not suffice to make up for a record current deficit. Unless there are any major shocks to growth, this environment should remain favourable in terms of business solvency.
■ In Western Europe, growth should accelerate. It will be driven mainly by exports that will profit from the delayed positive impact of the fall in the euro against the dollar, as well as by business investment. Household consumption should continue to rise at a moderate pace, still supported by gradual improvements in the labour market and, more marginally by a wealth effect associated with a healthy property market. In the main, budgetary policy will remain neutral but will not allow for a significant boost in activity or for curbing of the increasing weight of public borrowing in certain countries. Consequently, businesses will benefit from a more favourable economic environment, although still marked by significantly heterogeneous conditions depending on the countries.

■ Asia, where activity is stabilising, will remain the leading source of world growth because of both high external and internal demand. Ongoing high external surpluses and sustained buoyant Chinese demand are compensating for the negative impact of oil price rises. Despite growth, margins for Chinese businesses are being eroded, causing the default risk to remain at a significantly high level. The majority of businesses in the region under pressure from Chinese competition are adapting by implementing alternative strategies – shifting to high-end products or relocations – that should enable them to meet the challenge represented by unbeatable Chinese price competitiveness.

■ In Central Europe, the pace of growth should accelerate in 2006, driven by investment and exports. The recent period has been marked by the earlier than expected entry of the Slovakian crown into the European Exchange Mechanism (ERM2). This brings to seven (including Cyprus and Malta) the number of new European Union member countries having moved into this "waiting room" before joining the euro zone. This would indicate that we could expect to see these countries adopting the single currency between 2007 and 2009. In contrast, such a prospect cannot be envisaged before 2010 for the major countries in the zone (Poland, Czech Republic and Hungary) as they are struggling to reduce their public deficits.

■ In Latin America, growth, while remaining at a satisfactory level, should settle in the light of less robust external demand and lower raw materials prices. Nevertheless, the region is deriving benefits from more rigorous economic policies. The rapid expansion in exports is allowing for the majority of countries in the zone to reduce their external vulnerability. However, above all, 2006 will be influenced by a great many electoral campaigns. In this respect, if the elections go off well and if the economies withstand any possible tensions, it will represent a notable sign of the solidity of the continent's growth.

■ In the Near and Middle East, following the boom in barrel prices in 2005, the majority of oil-based economies should continue to profit from still very promising market conditions. Overall, the economies of the other countries in the region remain positive, thanks to sustained consumption and investments. Nevertheless, the region is still subject to high geopolitical instability.

	2001	2002	2003	2004	2005	2006

World output	1.5	2.0	2.7	4.0	3.3	3.4

Industrialised countries	1.1	1.3	1.9	3.1	2.4	2.5
United States	0.8	1.9	3	4.4	3.5	3.2
Japan	0.2	-0.3	1.4	2.6	2.2	2
European Union - 15	1.8	1.1	0.9	2.1	1.4	1.9
Germany	1.1	0.1	-0.1	1	0.8	1.2
United Kingdom	2.3	1.8	2.2	3.1	1.7	22
France	2.1	1.1	0.5	2.2	1.6	2
Italy	1.7	0.4	0.4	1.1	0.1	1.1
Emerging countries	2.8	4.0	5.3	6.6	5.7	5.6
Emerging Asia	4.4	6.0	6.7	7.3	6.9	6.8
Latin America	0,3	0.2	1.7	5.7	4.0	3.8
Central Europe	2.9	2.9	4.0	5.4	4.3	4.5
CIS	6.1	5.2	7.6	7.9	5.8	5.9
Middle East (+ Turkey)	0.7	3.5	6.2	6.1	5.5	5.2
Middle East (minus Turkey)	2.2	2.6	6.2	5.3	5.5	5.2
Sub-Saharan Africa	3.2	3.1	4.2	5.2	4.8	5.4

World Trade	0.1	3.4	5.4	1. 3	7.0	7.4

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