Euler Hermes: First green shoots of recovery in Italian non-payments

“The continued economic slowdown, flat consumption, the credit crunch and contracting investments remain the main contributors to the weakening of Italian businesses in 2014,” said Ludovic Subran, Euler Hermes chief economist. “The decreasing non-payment trend should be seen as a clear indicator of the slowdown impacting the entire national economy, and not as improved trade exchanges among Italian businesses.”

In 2014, non-payment between Italian businesses decreased in frequency (-30%) and severity (- 8%) compared to 2013. In transactions between Italian and foreign businesses, non-payment frequency decreased by 16%, while severity remained almost unchanged (+1%). However, 2014 data confirms that average outstanding amounts were still above 2007 pre-crisis levels: 63% domestically and 57% in export markets.

Very positive signs were registered in the agri-food and chemical/pharmaceutical sectors: an encouraging double-digit decrease in non-payments was recorded for the second consecutive year. The textile sector improved remarkably, especially compared to 2007 pre-crisis levels, after the latest economic cycle pushed marginal and small-sized businesses out of the market. Machinery and steel-making are on the rebound due to reorganization and restructuring efforts made by more companies from these sectors than others in the past two years.

“Our 2014 research confirms that the non-payment trend of the past two years continues, especially in the domestic market,” said Massimo Reale, director of Information & Grading at Euler Hermes Italia. “On one hand, Italian businesses proved able to manage liquidity, allocating funds to short-term operational management. On the other hand, however, following the economic crisis they concentrated on a smaller number of business partners, thus increasing non-payment severity even for well-established trade relationships.” 

2015 should mark the end of Italy’s three-year recession. GDP should timidly return to positive growth (+0.3%) on the back of growing domestic consumption and the driving force of exports (+2.6%) that is supported by an army of approx. 214,000 exporters. In 2015 more than €10 billion of additional exports will involve mainly traditional partners like France and Germany as a quantitative easing (QE) benefit, as well as the U.S. and Switzerland, where euro depreciation will create additional advantages for export-oriented businesses. Chemistry, food, machinery and textiles will record the highest growth abroad. Continuing Russian sanctions will play a major role, but Italian companies have already begun seeking other export markets for the “made-in-Italy” brand, such as Poland and Romania. Business and consumer confidence index is expected to rise, supporting consumption growth. Investments will remain weak, but financial leverage will be under less pressure from the second half of 2015.

“In 2015, Italy should record a slight improvement of Days Sales Outstanding (DSO) to around 111 days, and in non-payments and insolvencies (-2%). The risk of foreign partners’ insolvency should also improve - the only exceptions being the Czech Republic and Russian and the emerging Brazil and China markets,” concluded Subran.