July 25, 2012 / 12:13 AM / 5 years ago

UK, east Europe most at risk from euro zone crisis - survey

LONDON (Reuters) - Britain tops the list of outside economies most at risk from any worsening of the euro zone crisis because of its trade and banking links with the single currency bloc, a study by political risk think-tank Maplecroft showed on Wednesday.

The study ranked 169 countries according to their business with the debt-choked currency bloc as well as domestic resilience to a slowdown.

“Impacts for these economies include lowered industrial output, competitiveness loss and sovereign debts that could raise unsustainable levels due to rising yields,” Maplecroft said.

EU member Britain’s fiscal woes combined with strong trade links with the euro zone make its capacity for a response to further economic crises in the bloc “severely limited,” the study said.

A collapse of large euro zone economies would cut Britain’s trade by 7 percent and prompt losses equivalent to 7 percent of GDP for Britain’s banks due to their exposure to the euro zone banks and sovereign bonds, Maplecroft added.

Countries in central Europe and Scandinavia as well as commodity-exporting African countries Ivory Coast and Mozambique are also among the 17 economies classed as being at “extreme risk”, while the BRICs quartet of big emerging market nations Brazil, Russia, India and China is also highly exposed, the survey showed.

Fellow EU members Poland, Hungary and Czech Republic ranked second, third and fourth in terms of risk while Sweden and Denmark were placed eighth and ninth.

Many African countries, largely dependent on their strong trade and business links with the euro zone, made it to the top of the list, with Mauritania, Mozambique, Morocco and Ivory Coast part of the 17 countries with “extreme” exposure to the euro zone crisis.

Arab Spring countries Tunisia, Egypt and Libya follow closely behind, while Russia, Brazil and India were also tagged with a high exposure to the euro zone crisis.

Of the BRIC group of major emerging countries only China was ranked with no more than a medium exposure to the euro zone.

“These (BRIC) economies are not fully insulated from the slowdown themselves due to trade and investment relations with Europe and an escalating Eurozone crisis could further exacerbate current domestic slowdown in growth forecasts across the BRICS,” the study said.

The study weighed trade links with the euro zone, foreign direct investments, euro area bank exposure, as well as debt, deficit and inflation.

“Both economies and business may seek to manage this risk by diversifying trading patterns to account for lower demand, either in third countries or by concentrating on domestic markets,” said Mandy Kirby, an associate Director at the company.

Reporting by Ingrid Melander. Editing by Jeremy Gaunt.

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