The annual update of Coface's Political Risk Index, published in the Coface Q3 Barometer, highlights a dual trend: on the one hand, a decrease in the risk of conflict at a global level, but on the other, an increase in the risk of political and social fragility. The latter is exacerbated in the countries most exposed to the coronavirus pandemic.
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German companies want to cash in as early as possible, according to the fourth edition of Coface’s survey on corporate payment experience in Germany, conducted in July and early-August 2020, with 753 participating companies located in Germany.
Unsurprisingly, COVID-19 and its effects on the global and German economy is the predominant topic of this survey. One major finding is that German companies are getting worried: companies became cautious in providing payment terms to their clients and less companies are offering payment terms overall and these have shortened, even drastically in some sectors.
The COVID-19 health crisis has had a negative impact on short-term global renewable energy development, and challenges remain in the medium- to long-term, according to a recent Coface study.
Renewables have strengthened rapidly in the last 20 years, particularly in power generation, increasingly gaining market share from traditional energy sources such as coal, oil, and nuclear. The COVID-19 crisis has had a significant impact on this segment of the energy sector, as the pandemic disrupted supply chains and labour availability. Access to funding was also hit hard. These recent trends have affected projects that had already been approved, as well as other projects in the pipeline
This study is the very first Coface survey on corporate payment experience in the Netherlands. Originally, this survey had been conducted between February and early-March 2020 (the first quarter of 2020, Q1 2020), with 301 participating companies located in the country. However, at the end of the survey period, COVID-19 struck the world and changed the economic outlook drastically. Accordingly, in order to factor in this change of companies’ payment experience, we conducted a new survey between early-May and late- June (the second quarter of 2020, Q2 2020), in which 114 companies participated. The results differ remarkably within these few months. Admittedly, some might be due to the different set of participants, but others mirror the new economic status-quo.Read More
Here are the main points addressed in this Coface study:
A favourable context
Foreign trade and inclusion in supply chains had already increased for Central & Eastern European (CEE) in recent years, boosted by most of its countries’ decision to join the European Union (EU) in 2004.
• An educated workforce
• Geographical proximity to Western Europe
• Low labour costs
• Relatively good infrastructure
• A stable business climate
• Improving productivity through greater use of automation and "robotization".
Coface does not expect the sector to recover to fourth quarter 2019 level before 2022.
In Coface’s central scenario, the turnover of listed companies of the global transport sector will be 32% lower in the 4th quarter 2020 and 5% lower in the 4th quarter 2021 than in the 4th quarter 2019.
In the hypothesis of a second wave of the pandemic in the 3rd quarter of 2020, the turnover would be 57% lower in the 4th 2020 and 27% lower in the 4th 2021.
The impact of COVID-19 is all the more important since economic activity was already slowing down before the crisis.
As the COVID-19 epidemic hits the United States very hard, Coface forecasts in its baseline scenario that the country's GDP will contract by 5.6% in 2020, before rebounding by 3.3% in 2021. Nevertheless, this forecast is threatened by the resurgence of the outbreak in several states, which are already pausing or even reversing the resumption of activity after the extensive lockdown of April.Read More
After a 2019 that was dominated by trade tensions between the United States and China, Coface has observed an incipent recovery in Asia (excluding China), supported by supply chain shifts and additional liquidity from the US Federal Reserve . Average payment terms improved in 2019, rising to 67 days compared to 69 days in 2018. And while 65% of companies reported experiencing payment delays in 2019 (63% in 2018), the average payment duration decreased to 85 days in 2019, down from 88 days in 2018.Read More
Although the second quarter of 2020 is shaping up to be the most challenging period of the year, there are now good reasons to think that the road to recovery will be long and arduous. Despite immediate tax deferrals, liquidity guarantees, it is likely that many firms will find themselves in difficulty.
According to Coface forecasts, Spain and Italy will be among the economies hardest hit by COVID-19, contracting by 12.8% and 13.6% respectively in 2020. Corporate insolvencies are expected to increase by 22% in Spain and 37% in Italy by 2021, relative to 2019 levels. For 2021, Coface forecasts that Spain and Italy’s GDP will rebound by 10.2% and 8.9%, leaving the economies 3.9% and 5.9% below 2019 levels.
The economic consequences of the COVID-19 pandemic are of an unprecedented scale in Europe. The twin supply-demand shock has resulted in the halting of production (at least partially) in many companies as employees cannot go to work and in a fall in consumption because of mobility restrictions. The decline in revenues has deteriorated companies’ cash positions, fostering an increase in payment delays – and, ultimately, payment defaultsRead More
A few weeks after the first containment easing measures, economic activity seems to be picking up in most European countries. However, about two months after China, this gradual and partial recovery will not erase the effects of containment on global growth.
In this context, Coface forecasts that the recession in 2020 (a 4.4% drop in world GDP) will be stronger than that of 2009. Despite the recovery expected in 2021 (+5.1%) – assuming there is no second wave of the coronavirus pandemic – GDP would remain 2 to 5 points lower in the United States, the eurozone, Japan, and the United Kingdom, when compared to 2019 levels.
Our survey shows a deterioration in payment behaviour in 2019, which ultimately does not bode well for Chinese companies in the context of weaker activity in 2020. Coface expects growth to fall to 1.0%, the lowest level in 30 years, so given the historic correlation between economic activity and payment delays, we anticipate a sharp deterioration in 2020.Read More
Early 2020 marked by a sudden interruption in world trade, hampered by a global recession and soaring uncertainty
The global recession is expected to coincide with a sharp decline in international trade this year, especially as international trade tends to decline more than GDP in times of crisis. However, the extent of this overreaction is difficult to measure. The World Trade Organization (WTO) forecasts a 13-32% decline in world trade. This estimate indicates that all regions would suffer a double-digit decline in their trade volumes.
While the focus so far has mainly been on China, Europe, and the United States, the consequences of the COVID-19 pandemic are likely to be even more severe for emerging economies.
Even though their degree of vulnerability to this shock depends on many factors, the starting point of their public finances is a key issue, as it determines their capacity to respond to the crisis’ many economic consequences. However, their public debt was already at an all-time high in 2019. Coface assesses the direct risks (economic and sectoral) of the pandemic on the development of emerging countries.
Due to the current coronavirus (COVID-19) pandemic and its impact on the global economy, it is unlikely that China will be able to achieve its 2020 growth target. Coface forecasts a growth rate of 4% for the Chinese economy in 2020.
Economic activity in China could decelerate faster than expected this year and miss the Communist Party of China’s (CPC) growth target of 5.6%. In recent months, the Chinese economy has faced multiple headwinds, such as the consequences of the trade war with the United States, as well as structural factors, like the country’s demographic situation (15% of the Chinese population is over 65 years old). In this context, the COVID-19 pandemic is an additional shock that will add significantly to existing challenges.
At first, the COVID-19 epidemic in China only affected a limited number of value chains – but it has since turned into a global pandemic. Its repercussions have created a double shock – supply and demand – that is affecting a large number of industries in all over the world. The uniqueness of this crisis makes comparisons with the previous ones useless, as they all had financial origins (e.g. global credit crisis of 2008-09, great depression of 1929). The question is no longer which countries and sectors of activity will be affected by this shock, but rather which few will be spared.Read More
Despite the economic slowdown, Coface’s latest survey on business payments in Poland shows that payment delays have systematically shortened since 2017 – but the impact of the coronavirus outbreak on the Polish economy remains to be seen.
Payment terms: transport and construct offer the most generous credit periods
Poland’s GDP growth reached 4.1% in 2019 – a slowdown from the 5.1% recorded in 2018 – and is expected to slow further: Coface anticipates GDP growth in Poland to reach 3.3% in 2020. A relatively favourable macroeconomic environment has created supportive conditions for businesses in previous years. However, the full impact of the COVID-19 coronavirus remains to be observed, notably concerning trade partners. The coronavirus’ knock-on effects could further impact the economic outlook for Poland.
Coface Romania Study: Insolvencies in Romania decreased by 22% in 2019 compared to previous year, reaching its lowest level over the last decade
The majority of insolvencies were registered in the wholesale and distribution sector followed by the constructions and retail sectors
The most recent Coface Romania study shows that in 2019 there were 6,384 insolvent companies, -22% less compared to the level registered in the previous year. The data also indicate a gradual decrease of insolvent companies with revenues over EUR 0.5 million (medium and large companies). The latter reached 444 companies during 2019, below the average of 550 over the last three years. This evolution was also reflected in the decrease of financial losses of only RON 4.6 billion in 2019, half of the average for the last three years.
As Coface launches the 2020 edition of its Country & Sector Risks Handbook, Chief Economist Julien Marcilly today presents the main threats for the global economy in 2020 at the Coface Country Risk Conference in Paris.
The US-China trade agreement will not be enough to rekindle international trade
With 2019 being marked by a rise in protectionist rhetoric (more than 1,000 measures implemented worldwide) and the first decline of global trade in ten years, Coface anticipates that international trade will grow by only 0.8% in 2020. The truce trade agreement between the United States and China is unlikely to restore corporate confidence or significantly boost industry and world trade, especially as only 23% of the protectionist measures taken between 2017 and 2019 affect the United States or China. The rise in protectionism is therefore a global and lasting trend that to which companies will need to adapt