What We're Reading:

Evergrande, Kaisa cut by Fitch to default after missed payment deadlines. Ratings agency Fitch downgraded property developers China Evergrande Group and Kaisa Group on Thursday, saying they had defaulted on offshore bonds, while a source said Kaisa had started work on restructuring its $12 billion offshore debt. (Reuters)

China tightens control to restrain currency's rise. China’s central bank is trying to restrain the rise of the yuan after the currency hit a 2 1/2-year high against the dollar. (US News & World Report)

Shipping costs - another danger for inflation-watchers to navigate. Much like the coronavirus pandemic, and the economic disruption that it has caused, a global shipping crisis looks set to go on delaying goods traffic and fueling inflation well into 2023. (US News & World Report)

Biden-Putin 2-hour talks yield no breakthrough in Ukraine tensions. President Joe Biden and Vladimir Putin were still far apart after two hours of talks on the escalating crisis caused by Russia’s massing of tens of thousands of troops near its border with Ukraine. (Business Mirror)

UK ‘taking risks’ in haste to agree new trade deals, audit finds. The UK government’s rush to secure new trade agreements means it may not be doing enough to ensure companies can take advantage of deals already reached, according to an independent audit. (Global Trade Review)

UK, Norway and EU sign agreement on North Sea fishing catch limits. Britain said on Friday it had signed a trilateral agreement with Norway and the European Union on fishing catch limits for 2022 for six jointly managed fish stocks in the North Sea. (Reuters)

The Turkish economy's War of Independence. While Turkish President Recep Tayyip Erdogan has been telling his people that he is leading them towards growth, creating more jobs and increasing exports, we see the continuous freefall of the country's currency; price hikes and rising inflation. (MEMO)

Euler Hermes: Supply chain disruptions may ease in the second half of 2022. Global supply chain disruptions may continue until the second half of next year, trade credit insurer Euler Hermes said in a report published Thursday. (HSN)

Russia and Ukraine trade blame as ceasefire push breaks down. Ukraine and Russia blamed each other after a push to agree a new ceasefire in eastern Ukraine broke down late on Thursday as tensions over a Russian troop buildup near its southern neighbor persisted. (MSN)

US House votes to clamp down on imports from China's Xinjiang. The US House of Representatives passed legislation that would ban imports from China's Xinjiang region unless corporations can provide "clear and convincing evidence" that the products were not made using forced labor. (DW)

US and EU seal deal on Section 232 steel and aluminum tariffs. Announced during the G-20 summit in Rome, European Union (EU) and United States negotiators reached an agreement over the long-standing issue of Section 232 tariffs on EU exports of steel (25%) and aluminum (10%) to the US. (Shipping Solutions)

Why US companies are reshoring their business. More and more US companies are moving their production and manufacturing facilities back home because of supply snarls and insufficient production capacity abroad. (DW)

When should your company develop its own software? Leveraging homegrown software to bring innovation to your market or to create more efficient operations can be a strong growth driver. But the buy-it vs. build-it decision is a critical one. If buying the software you need just isn’t possible, building it may make sense. (Harvard Business Review)

The US predicted his downfall but Maduro strengthens his grip on power in Venezuela.  A new cartoon on Venezuelan state TV portrays President Nicolás Maduro as a caped crusader who fights Yankee imperialism with an iron fist. It's called Súper Bigote — "Super Mustache." (NPR)

Global insolvencies decreased in 2020 (12%) and will continue to do so in 2021 (6%) as the extension of many state support measures in a context of generally accommodative monetary policy is helping to manage the pressure on companies’ liquidity and solvability, according to trade credit insurer, Euler Hermes, in its latest report.

“Looking at insolvency levels, governments succeeded in helping companies face the crisis: Massive state intervention prevented one out of two insolvencies in Western Europe and one out of three in the U.S. in 2020”, said Maxime Lemerle, head of sector and insolvency research at Euler Hermes. “Their extension will keep insolvencies at a low level in 2021, but what happens next depends on how governments act in the coming months.”

According to Euler Hermes, the withdrawal of support measures for companies sets the stage for a gradual normalization of business insolvencies. The trade credit insurer expects global insolvencies to post a 15% year-on-year rebound in 2022, after two consecutive years of decline. But with a fine-tuned and step-by-step removal, the return to pre-crisis insolvency levels will take longer: Global insolvencies will remain 4% below 2019 levels in 2022.

Country and Regional Differences

Emerging markets are already seeing a normalization of business insolvencies amid renewed restrictions in response to new waves of infections and less generous policy support. We expect those in Africa to exceed pre-Covid-19 levels as soon as 2021, and those in Central and Eastern Europe and Latin America to do so in 2022.

After a noticeable decline in 2020-21 due to the faster exit from the pandemic and the corresponding economic recovery, most Asian countries will post higher insolvencies in 2022 (18% compared with this year for the region). India in particular will see a strong surge (69%) due to the specific duration of the suspension of courts over 2020-21. However, while most countries will return to the natural number and trend in insolvencies related to their business demographics and economic outlooks, the region overall will still record fewer insolvencies in 2021 than in 2019, unless a prolonged resurgence of the virus continues to disrupt ports, plants and supply chains.

Western Europe will post mixed trends: Spain and Italy are likely to see a large recovery of insolvencies by 2022 (5,110 and 10,500 insolvencies, respectively) due to their higher shares of sectors sensitive to Covid-19 restrictions. In contrast, Germany (16,300), France (37,000), Belgium (8,150) and the Netherlands (2,400) will take longer to return to pre-crisis levels because of large support packages and/or the extension of support measures.

The U.S. is the main outlier, with a low number of insolvencies likely both in 2021 and 2022 due mainly to the combination of massive support (notably the PPP virus loan program in 2020 and the recovery plan in 2021-22) and the fastest economic rebound in over three decades.

Indicators to Shape Insolvency Evolution

Euler Hermes has identified five factors that will set the tone of the path ahead for global insolvencies:

• The global momentum of the economic rebound, which will be decisive for the pace of removal of state support measures and in turn impact the pace of business insolvency normalization: Most advanced economies should see GDP growth above the 1.7% required to stabilize insolvencies in 2021-22. As a reminder, Euler Hermes estimates that global GDP will grow by 5.5% in 2021 and 4.2% in 2022;
• The pace of withdrawal of state support because it also will influence the cash burning dynamic of companies;
• The number of fragile companies at high risk of default, notably the pre-Covid-19 zombies kept afloat by emergency measures and the companies weakened by extra indebtedness from the crisis;
• The deterioration of companies’ financials, which is adding to debt sustainability issues; and
• The quick recovery of business creation because the increase in the number of businesses will mechanically increase the base for potential insolvencies, particularly in sectors where creation is highly related to meeting new needs arising from the pandemic (i.e., home delivery) but with uncertain viability.

Rising vaccination rates and a rebound in exports are helping Japan’s economy to recover from the shock caused by Covid-19, although challenges remain. Investing in technology, education and professional training to broaden and accelerate the country’s digital transformation would help to spur productivity growth and reinforce public finances, according to a new Organisation for Economic Co-operation and Development (OECD) report.

The latest OECD Economic Survey of Japan says that as the economy regains momentum, efforts can shift from emergency support measures to targeted policies and reforms to boost labor force participation and productivity, helping to uphold growth and living standards over the long run. Improving public spending efficiency, including through digitalizing more government services, and gradually raising the consumption tax, which is low by OECD standards, could help to reduce the public debt-to-GDP ratio, ease the pressure on public finances from a rapidly aging population and ensure fiscal sustainability. There is also scope to broaden environment-related taxation.

“Japan is on track for a steady recovery which will enable a gradual reduction in support to the economy and a renewed focus on structural reforms to sustain growth over the long term,” OECD Secretary-General Mathias Cormann said. “Making better use of the digital transformation and improving business dynamism will be key to avoiding the economic scars that persisted after previous downturns and turn the ongoing rebound into long-lasting growth.”

The survey projects GDP growth of 3.4% in 2022, as health and economic conditions improve, after a contraction of economic activity of 4.6% in 2020 and a modest 1.8% expansion in 2021, as Japan grappled to contain new virus outbreaks. While strong export markets, particularly in East Asia and the United States, have underpinned the recovery, sluggish wage growth may keep consumption subdued for some time. It is important to remain vigilant to the emergence of new variants, such as the omicron variant, that could trigger fresh states of emergency and slow school-to-work transitions.

The pandemic exposed a need to broaden the digital transition in Japan, where a reliance on physical paperwork saw businesses, households and government agencies facing challenges to move to remote working. Japan has a well-developed digital infrastructure, a highly skilled workforce and is at the leading edge of technologies such as robotics, yet many small firms are lagging behind in adopting digital tools. The survey recommends more investment in tech sector hardware and research, greater efforts to diffuse new technologies throughout business and government, and more firm-based training in digital skills.

More could also be done to increase business dynamism, including through simplifying administrative burdens to ease the entry of new firms and improving personal bankruptcy rules and SME support structures that allow support for and impede the exit of unviable firms. In the face of labor shortages, mergers, acquisition and divestitures of SMEs should be encouraged to promote the consolidation of managerial resources in viable firms.

Japan has successfully pursued labor reforms to boost employment, more than offsetting the impact of an aging population on the size of the workforce. However, the pandemic has reversed some of this progress, and renewed efforts are needed to help currently unemployed and new entrant workers to transition into jobs. The Survey recommends focusing future reforms on ensuring equal pay for equal work, improving flexible working arrangements and childcare provision to enable more women to work. The compulsory retirement age should be abolished or raised, linking it to life expectancy, and incentives created to stay in work longer.

Much is made about how cryptocurrencies are changing the very nature of commerce and investing. But while the headlines trumpet bitcoin et al. as (possibly, maybe) becoming an alternative to cash and El Salvador taking giant leaps by accepting bitcoin as legal tender, cryptos have been changing commercial payments too.

In the report, Cryptocurrency, Blockchain and Cross Border Payments, done in collaboration between Circle and PYMNTS, surveys of 250 executives reveal that cryptocurrency and blockchain technologies are proving increasingly useful for cross-border businesses. The firms surveyed have at least $10 million in annual sales.

At a high level, cryptos can make cross-border payments a bit more streamlined, more transparent and cost-effective.

As many as 58% of firms use at least one crypto; bitcoin is the most widely used crypto by 31% of those respondents with sales of between $250 million to $1 billion, followed by stablecoins at 29%. Roughly 55% of companies use the blockchain.

And there’s a gap in place where a lagging percentage of financial institutions provide access to cryptos. Overall, only 10.2% of financial institutions (FIs) offer their enterprise clients that access. About 29% of FIs state that concerns over security are barriers to access.

At the same time, 64% of banks state that crypto access is important to their enterprise clients. The most important services for clients include payments acceptance, access to the cryptos themselves and blockchain networks.

PYMNTS noted in the report that there is a strong correlation between the share of firms that use DeFi solutions, using cryptocurrency and/or blockchain for these purposes and the number of countries in which they operate. Sixty-nine percent of businesses that operate in more than 10 countries use smart contracts that trigger payment, as do 61% of those that operate in six to 10 countries.

As to what would incentivize businesses to embrace cryptos more accurately, more than 52% pointed to clarity on regulations.

Reprinted with permission by PYMNTS. 

 

Week in Review Editorial Team:

Diana Mota, Editor in Chief and David Anderson, Member Relations