World Trade - November 2008 - (Page 8)

POLICY PERSPECTIVES Reading the States of Risk in Today’s Global Economy he current crisis in international credit markets and the slowing economy have challenged trade credit insurers. The resulting anxiety among CEOs and credit managers has increased the demand for trade credit protection to an all time high in the United States. This increased demand is in part a function of the higher risk of covering trade in sectors like retail and the construction industry, but also the success the carriers have had in gaining product awareness over the past several years. The global trade credit insurance carriers such as Coface protect billions of dollars of short-term trade at any given time. Faced with an uptick in BY DANIEL GRISWOLD BY KENNETH MOYLE claims from the increase in business bankruptcies and slowing trade payments, the insurance carriers have reacted to the deterioration in the credit environment by reducing exposures on the most vulnerable companies and reinforcing basic disciplines in underwriting new credit limit requests. All of this scrutiny, as well as the data derived from monitoring global trade ﬂows, provide a distinctive look into what is happening in the real (as opposed to ﬁnancial) business-to-business economy. So what is Coface seeing from its external analysis and internal data-gathering on company payment behavior? The Construction and world growth slowdown has been receiving less attention in the news, related sectors are the but it is still significant. Coface expects global growth of 3% overmost vulnerable. Other all in 2008, compared with 4.1% in 2007. All of the world’s regions, industries to watch with the exception of Africa and the include air transportation, Middle East, are expected to lose around one point of GDP growth. This growth slowdown, comretail, automotive, and bined with the meltdown in the specialized distribution. U.S. ﬁnancial sector, has triggered a credit crisis that reaches beyond the U.S. and its immediate neighbors. In Europe, the real estate bubbles are beginning to burst in Spain and the United Kingdom. In Spain, the sluggish construction industry, until recently the main engine for growth there, has hampered consumption and investments. Company payment incidents, the ability of companies to pay invoices on time and a key indicator tracked by Coface, have clearly declined. Overdue payments in neighboring Portugal, heavily dependent on trade with Spain, have increased twofold there since the beginning of the year. 8 WORLD TRADE NOVEMBER 2008 T And in Scandinavia, Denmark is vulnerable due to a fragile construction sector and high levels of household debt. Credit risks are also increasing in the most vulnerable emerging countries—South Africa, Vietnam and the Baltic countries—where excessive imbalances in foreign deﬁcits and accelerating inﬂation are no longer sustainable. Years of strong growth in these countries have deepened external imbalances and stimulated inﬂation. In addition, households and businesses are carrying considerable foreign currency debt. So far, the BRICs (Brazil, Russia, India and China) have avoided the crisis. Vigorous domestic demand and the absence of any major imbalances are supporting their performance levels. From the industry sector point of view, it should be no surprise that construction and related sectors are the most vulnerable. Other industries to watch include air transportation, retail, automotive, and specialized distribution. There is some good news. Companies went into the current credit crisis with stronger balance sheets than during the previous crises, in part because the expansion period that preceded the crisis was shorter. It has been observed that the farther away we move from a crisis, the more businesses and their ﬁnance managers tend to take risks. A second positive element is the resilience and growing relative inﬂuence of emerging countries that make the global slowdown less noticeable (1 point of GDP of growth loss between 2007 and 2008 compared with 3.4 points between 2000 and 2001). Therefore, the impact on corporate payment incidents should be less severe as in the previous crisis. Could the credit crisis get worse? Coface is beginning to see a loss of conﬁdence among households and companies in France and Germany, for example, where the credit crisis has not had a signiﬁcant impact at this stage. This could signal that the slowdown could widen throughout Europe. In addition, a sharp slowdown in China would question the resistance of emerging countries that has been observed until now. The credit crisis is expected to continue through 2009, rebounding when the overall global economy begins to pick up again. WT Kenneth Moyle is Senior Vice President and head of risk underwriting at Coface North America, a provider of trade credit insurance and credit management services.

Table of Contents Feed for the Digital Edition of World Trade - November 2008

World Trade - November 2008 Contents Unexpected Responses to Unanticipated Change Reading the States of Risk in Today’s Global Economy Supply Chain Watch Tradewinds Failed Promise: Mexico and NAFTA, 15 Years Later The Short Tale Marrying Trade Finance and Transportation into a Single Transaction Trucking Gets a Double Whammy Are We Safe Yet? Logistics Resurrects the Rust Belt Keep on Compressing

World Trade - November 2008

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