By Richard Reynolds Head of Strategic Accounts at leading trade credit insurer Atradius
Across the global economy, clusters of storms continue to rumble. While on the ground, it can be easy to overlook turbulence in the macro environment, especially if everything on the surface seems to be ‘business as usual’, the reality is that no matter how far away the risks may be, their impact can be far reaching. Building a sustainable trade strategy demands insight into the risks at every level, within the domestic market and farther afield. Change is on the horizon, as the global economy loses steam and advanced market growth shifts into a lower gear, after nine years of decline, global insolvencies are starting to rise.
The global outlook
Global GDP growth is slowing; down from 3.2% in 2018, to a forecast 2.5% in 2019 and 2020. Tensions between the US and China have undoubtedly been a catalyst, not only directly affecting access to export markets but also creating uncertainty which weighs upon business confidence and investment. Sectors that have been particularly hit include automotive, electrical equipment and building materials. A marked slowdown in global trade growth is also evident. While global trade saw a strong expansion of 4.2% in 2017, it fell to 3.4% in 2018 and 2019 figures, when published, are expected to confirm a further contraction, with only a weak recovery forecast for 2020. Meanwhile, the global insolvency forecast expects business failures to have increased 3% in 2019 and projected to rise another 2.6% this year.
Europe’s insolvency outlook
Weakening economic growth was behind an increase in the number of Western European businesses going bankrupt in 2019, with an overall increase of 2.3% expected for 2019 and a further 1.3% increase forecast for 2020. The slowdown in growth reflects prevailing weakness in international trade, with global uncertainties weighing also on the manufacturing sector, particularly in Germany. Slowing economic growth, the broadening of tariffs between the US and China, uncertainty surrounding Brexit and Italian politics are all contributing to the upswing in business failures across Western Europe, posing risks to financial stability and corporate solvency in 2020.
The last 12 months saw insolvencies in the United Kingdom rise higher than in any other Western European market. With annual statistics expected to be confirmed shortly, UK insolvencies are forecast to have risen 8% in 2019 and to rise a further 7% in 2020 – based on a 1.1% economic expansion and assuming a smooth Brexit transition. In Ireland, insolvencies remained level year on year in 2019, but are expected to tick up 2% in 2020. Elsewhere in Europe, insolvency increases are also forecast; in Belgium the increase for 2019 is expected to be confirmed at 6%, compared to 5% in Turkey and 4% in the Czech Republic; with increases of 2%, 5% and 2% forecast for 2020 respectively.
With domestic challenges, especially in the automotive sector, already worsened by weaknesses in world trade, growth in Germany cooled from 1.5% in 2018 to 0.6% in 2019. However, German insolvencies are forecast to have increased by only 1% in 2019 and to stabilise this year, due to ongoing reductions in retail insolvencies and robust private consumption. Meanwhile, slow growth in Italy is expected to have pushed insolvencies 2% higher in 2019 while uncertainty poses a risk to the static forecast for 2020. Business failures in The Netherlands are expected to have risen 4% in 2019 with a further 1% increase forecast for 2020. In France, the insolvency forecast for 2019 indicates an increase of 2% with a similar rise expected this year. The picture for Spain and Portugal is slightly more positive, as while Spain’s economy is slowing, growth remains among the highest in the eurozone with a projected 1% decline in insolvencies for 2019 and further 2% decline in 2020. In Portugal, recovery is forecast to reduce insolvencies by 2% in 2020, following a forecast 6% decline for 2019.
It’s all about mindset
Risk is an inherent part of business and while the current economic environment may underline the challenges, it is important not to cloud ambition. While it’s true that uncertainty dominates the global economic landscape, opportunity for trade continues. Staying ahead of the game by keeping abreast of available data is crucial, understanding the strengths and weaknesses of relevant worldwide markets, using reliable business intelligence to inform decisions and develop a robust risk management strategy. Knowledge is the key to success, enabling businesses to mitigate negative risks and leverage opportunities for new trade relationships and potential growth.
Protecting your business
We cannot overstate the importance of information. When it comes to trading, a business can only succeed when if equipped with the right knowledge and insights. Make it your business to know the ins and outs of your market; its economic performance and insolvency environment, any political risks as well as specific industry performance. It’s important too to keep this information current as change happens quickly.
The global economy is host to as many vulnerabilities and risks as there are opportunities, each with the potential to impact your business and its trading relationships directly or indirectly. Proactively protecting your business from such risk sounds obvious, but too often companies overlook the basics.
Trade credit insurance is an indispensable tool, providing access to reliable information with insights and analysis of your market and individual customer payment behaviors. Atradius enjoys a world -wide presence with our experts on the ground in more than 50 countries, our vast data source enables insured customers to trade with confidence. The forecast for the trading landscape may be unsettled, but with the right protection, your business can weather the storm.