Every three months, the analysts at Societe Generale update their chart of "swan" risks in their quarterly "Global Economic Outlook" report.
"Black swans" characterize unforeseen and unlikely events that have the potential to rock the economy and financial markets.
The risks laid out by SocGen are very much visible to us.
"Risks are centered on credit and liquidity storm surges," they wrote.
As the analysts explain, the upside risks is largely from advance economies' credit, whereas the downside risks are from emerging markets' credit.
"Fundamentals in the advanced economies continue to improve and we have made upward revisions to our euro area growth outlook, in part reflecting fiscal drift but also stronger export performance and much improved financial conditions," they write. "On the upside risks, faster than expected credit expansion, be it in the US, UK, euro area or Japan, holds the greatest upside potential for the global economy. Emerging economies could also deliver upside surprises with better-than-expected progress on structural reform attracting the return of investors. Upside surprises could also come from an easing of monetary conditions in China, but we fear this would be at the cost of far greater risks to the economy in the medium term."
"On the downside, risks centre on emerging economies and what we term liquidity storm surges. These could result both from political events and misjudged policy choices. More aggressive than expected policy tightening from the Federal Reserve and/or portfolio concentration risks could further aggravate the situation. As we head to press, moreover, the German Constitutional Court is due to rule on the ESM. The divide on the euro area's future institutional framework remains significant and albeit no longer a source of immediate market concern the shortcomings of the current institutional framework would become all too clear in the event of a new shock."
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