HAMBURG - 15 APRIL 2016 – The recent study “Top or flop? 2016” marks a trend reversal in global insolvencies: given the latest developments as world trade weakens,
Euler Hermes, the worldwide leader in trade credit insurance, expects global corporate bankruptcies to rise in 2016 for the first time in seven years (+ 2%). In Germany the number of cases is expected to stagnate in 2016 for the first time after years of steady decline and even increase slightly in 2017 (+ 1%).
The positive news, however, is that although risks may be rising, so too are German exports. Over the coming years, exports are expected to grow by USD 104 billion – despite global trade nominally growing by just 2.7% in 2016 and in value terms actually shrinking by a further 2% compared to last year.
Formula 1 of exports: high speeds, overtaking maneuvers, high risks and danger of "jostling"
"At the moment German exports are a bit like Formula 1 – high speeds and increasing risks, surprise overtaking maneuvers and the danger of unexpected "jostling" from the blind spot," says Ron van het Hof, CEO of Euler Hermes Germany, Austria and Switzerland. "Exporters are pressing hard on the gas pedal. Over the next two years they will even post stronger export growth than China (+ USD 96 billion) and gain pole position through this overtaking maneuver. At the same time, greater risks lie in wait for them on the track. They can only win by taking risks, but also need to be well protected, drive carefully and employ an effective pit-stop strategy with the right partners."
FLOP: Risk increases; three of Germany’s five main trading partners are suffering more insolvencies
Course and weather conditions vary depending on the race circuit and the economic climate:
"The export trade remains risky – but without risk it won’t work," explains Ludovic Subran, chief economist at Euler Hermes. "Three of Germany’s five main trading partners are seeing a rise in insolvencies in 2016, and therefore an increase in risks. We predict that the frontrunner, the US, will experience a 3% rise in insolvencies, the UK a rise of 1% and China as much as 20%. In the Netherlands and France, Germany‘s second most important trading partners, bankruptcies are falling – although they are still close to record levels in France.”
The emerging markets, where German exporters also detect growth opportunities, are also seeing a significant increase in insolvencies. Brazil holds the negative record ahead of China (+20%), with bankruptcies up 22%. The Asian supplier countries follow, and are heavily dependent on China: Taiwan (+17%), Hong Kong and Singapore (+15% each), as are the Latin American countries of Colombia (+13%) and Chile (+11%). Insolvencies are also on the rise in Australia (+12%), South Africa (+10%), Turkey (+8%), Russia (+7%), Greece and Switzerland (+3% each).
Staying home is not an option: other countries will start from pole position
"Staying home is not an option, because export companies would have to go to the end of the line if things kick off again in markets that are currently riskier," says Subran. "Then others with better stamina and steadier nerves will long ago have gained pole position and stayed there. The emerging markets are aptly named – they are aspiring markets with all the associated characteristics: non-linear, volatile development with highs and lows, and significant growth opportunities long term."
TOP: Overtaking maneuver in exports – but currency effect set to weaken in 2016
Germany will benefit from growth opportunities over the next two years, especially strong import growth among their main trading partners China, France, Netherlands, UK and the US.
"German exporters are positioning themselves to overtake in terms of export growth," says Subran. "This is despite weakening of the favorable currency turbo that makes German goods cheaper abroad. Potential export growth outside the eurozone is therefore lower than in 2015. Exports to France in 2016 are growing more strongly than those to the US, which in 2015 took the crown as Germany’s main trading partner for the first time. Exports to the UK, which is mired in the pit lane, can only rise minimally. The losers from the German export markets include Brazil, Greece and Russia."
Health check: Export outlook and profits good, margins below average, expectations fall
Profits of German exporters are stable, but profit expectations have lowered as a result of turmoil, especially in the emerging markets, and margins are also lower than the long-term average. Despite this, many companies are in a strong position, as confirmed by payment behavior. German companies make payments much faster than the global average. In Germany the period between invoice and payment (Days of Sales Outstanding, or DSO) at listed companies is just 56 days, whereas globally companies have to wait 67 days, i.e. 11 days longer.
Trend reversal: Payment delays down, non-payments up
"It is interesting that payment delays fell last year, but non-payments were up 3%," says Subran. "This, combined with high competitive pressure and below-average margins, confirms the trend reversal we predicted, with insolvencies stagnating once again in Germany in 2016 followed by a slight rise in 2017."
Beware of unexpected "jostling": Political risks and capital controls waiting in the wings
Exporters should also keep an eye out for possible "jostling" from their blind spot, said Subran.
"2016 may have some nasty surprises in store. For example, a wave of capital controls could reach emerging markets. Political uncertainties due to elections and the threat of social unrest in many countries including Brazil, Thailand and Turkey are keeping politics, and above all the economy, on tenterhooks this year. Some of these surprises lurk at our own front door in Europe, including a possible UK Brexit and Spanish elections. Conflicts in Turkey and the Middle East also cast shadows in terms of economic risk. After the turmoil this year, the surprises will continue – there will always be winners and losers. The key is to do business with the right companies, whatever the market or sector, to ensure a place on the winner’s podium."
The positive news, however, is that although risks may be rising, so too are German exports. Over the coming years, exports are expected to grow by USD 104 billion – despite global trade nominally growing by just 2.7% in 2016 and in value terms actually shrinking by a further 2% compared to last year.
Formula 1 of exports: high speeds, overtaking maneuvers, high risks and danger of "jostling"
"At the moment German exports are a bit like Formula 1 – high speeds and increasing risks, surprise overtaking maneuvers and the danger of unexpected "jostling" from the blind spot," says Ron van het Hof, CEO of Euler Hermes Germany, Austria and Switzerland. "Exporters are pressing hard on the gas pedal. Over the next two years they will even post stronger export growth than China (+ USD 96 billion) and gain pole position through this overtaking maneuver. At the same time, greater risks lie in wait for them on the track. They can only win by taking risks, but also need to be well protected, drive carefully and employ an effective pit-stop strategy with the right partners."
FLOP: Risk increases; three of Germany’s five main trading partners are suffering more insolvencies
Course and weather conditions vary depending on the race circuit and the economic climate:
"The export trade remains risky – but without risk it won’t work," explains Ludovic Subran, chief economist at Euler Hermes. "Three of Germany’s five main trading partners are seeing a rise in insolvencies in 2016, and therefore an increase in risks. We predict that the frontrunner, the US, will experience a 3% rise in insolvencies, the UK a rise of 1% and China as much as 20%. In the Netherlands and France, Germany‘s second most important trading partners, bankruptcies are falling – although they are still close to record levels in France.”
The emerging markets, where German exporters also detect growth opportunities, are also seeing a significant increase in insolvencies. Brazil holds the negative record ahead of China (+20%), with bankruptcies up 22%. The Asian supplier countries follow, and are heavily dependent on China: Taiwan (+17%), Hong Kong and Singapore (+15% each), as are the Latin American countries of Colombia (+13%) and Chile (+11%). Insolvencies are also on the rise in Australia (+12%), South Africa (+10%), Turkey (+8%), Russia (+7%), Greece and Switzerland (+3% each).
Staying home is not an option: other countries will start from pole position
"Staying home is not an option, because export companies would have to go to the end of the line if things kick off again in markets that are currently riskier," says Subran. "Then others with better stamina and steadier nerves will long ago have gained pole position and stayed there. The emerging markets are aptly named – they are aspiring markets with all the associated characteristics: non-linear, volatile development with highs and lows, and significant growth opportunities long term."
TOP: Overtaking maneuver in exports – but currency effect set to weaken in 2016
Germany will benefit from growth opportunities over the next two years, especially strong import growth among their main trading partners China, France, Netherlands, UK and the US.
"German exporters are positioning themselves to overtake in terms of export growth," says Subran. "This is despite weakening of the favorable currency turbo that makes German goods cheaper abroad. Potential export growth outside the eurozone is therefore lower than in 2015. Exports to France in 2016 are growing more strongly than those to the US, which in 2015 took the crown as Germany’s main trading partner for the first time. Exports to the UK, which is mired in the pit lane, can only rise minimally. The losers from the German export markets include Brazil, Greece and Russia."
Health check: Export outlook and profits good, margins below average, expectations fall
Profits of German exporters are stable, but profit expectations have lowered as a result of turmoil, especially in the emerging markets, and margins are also lower than the long-term average. Despite this, many companies are in a strong position, as confirmed by payment behavior. German companies make payments much faster than the global average. In Germany the period between invoice and payment (Days of Sales Outstanding, or DSO) at listed companies is just 56 days, whereas globally companies have to wait 67 days, i.e. 11 days longer.
Trend reversal: Payment delays down, non-payments up
"It is interesting that payment delays fell last year, but non-payments were up 3%," says Subran. "This, combined with high competitive pressure and below-average margins, confirms the trend reversal we predicted, with insolvencies stagnating once again in Germany in 2016 followed by a slight rise in 2017."
Beware of unexpected "jostling": Political risks and capital controls waiting in the wings
Exporters should also keep an eye out for possible "jostling" from their blind spot, said Subran.
"2016 may have some nasty surprises in store. For example, a wave of capital controls could reach emerging markets. Political uncertainties due to elections and the threat of social unrest in many countries including Brazil, Thailand and Turkey are keeping politics, and above all the economy, on tenterhooks this year. Some of these surprises lurk at our own front door in Europe, including a possible UK Brexit and Spanish elections. Conflicts in Turkey and the Middle East also cast shadows in terms of economic risk. After the turmoil this year, the surprises will continue – there will always be winners and losers. The key is to do business with the right companies, whatever the market or sector, to ensure a place on the winner’s podium."