What We're Reading:

China’s 2022 soybean demand falling up to 6% as feed requirements dip. Demand for soybeans from China—the world’s biggest importer of soybeans—is forecast to fall 3.5%-6.1% year on year in 2022 due to lower demand from the downstream feed sector, a survey of market participants at more than 10 major trader, crusher and broker companies by S&P Global Commodity Insights found April 21. (HSN)

Saudi Arabia inks agreement on non-oil exports and SME access to finance. Saudi Arabia’s government and export-import bank are seeking to grow non-oil exports and increase SME access to trade finance facilities, signing an agreement with the Islamic Trade Finance Corporation (ITFC). (GTR)

UK announces further import sanctions against Russia. The U.K. Government has announced further trade sanctions against Russia—expanding the list of products facing import bans and increasing tariffs. (Mirage)

Deficit with China hits $15.2B, or 35% of total PHL trade gap. THE Philippines’s trade with China was the most unfavorable as it yielded a trade deficit worth $15.245 billion in 2021, according to the latest data released by the Philippine Statistics Authority (PSA). (BM)

Ukraine war spells ‘end of globalization as we know it,’ says EU’s Gentiloni. The war in Ukraine has shown the limitations of the decades-long German approach of seeking to change Russia through trade and spells the end of globalization as we know it, the European Economic Commissioner Paolo Gentiloni said on Thursday (21 April). (Euractiv)

India’s coal imports are shifting, thermal more than coking. India’s coal imports are starting to reflect shifting world trade and pricing dynamics in the wake of Russia’s invasion of neighboring Ukraine. (HSN)

As the jobs recovery nears completion, it’s time to talk about job quality. The economy added 431,000 jobs in March, according to the Bureau of Labor Statistics, while the unemployment rate fell to a historic low of 3.6% that has only been matched three times in the past 50 years. (Brookings)

The US can prosecute Russian leaders for war crimes. Since April 4, when President Biden accused Russian President Vladimir Putin of being a war criminal, many commentators have focused on how Russian leaders might be subject to international war crimes trials. (Lawfare)

Energy crisis: What role can Germany's oil and gas sector play. As Germany looks to ditch Russian oil and gas for good, its domestic energy industry is a key side actor—but can it step up to the plate? (DW)

Russia blocks 4 Egypt-bound corn-loaded ships. Ukraine yesterday accused Russia of blocking four Egypt-bound ships loaded with wheat and corn from leaving Ukrainian ports. (MEMO)

Why inflation is here to stay. The increased prices consumers have been struggling with lately are here to stay, given the current geopolitical tensions and the continuing supply chain disruptions, said Vijay Valecha, chief investment officer, Century Financial. (Arabian Business)

EU's Michel urges Putin to engage with Zelenskiy - EU official. European Council President Charles Michel in a phone call on Friday urged Russian President Vladimir Putin to engage directly with his Ukrainian counterpart, Volodymyr Zelenskiy, and called for a ceasefire in Ukraine, an EU official said. (U.S. News)

Indonesia launches corruption case over palm oil exports. Indonesian authorities have opened a corruption case linked to the issuance of palm oil export permits, naming four suspects including a trade ministry official and palm oil company executives, the attorney general said on Tuesday. (Reuters)

It can feel exhausting to be a credit professional today when the global economy is quickly changing. Being in the know about current risks in global trade can help in successful credit management. Here’s three key themes businesses should be aware of.

1. Global GDP Takes a Hit

The war in Ukraine has cut global growth predictions for this year. The World Trade Organization (WTO) cut its GDP forecast from 4.1% to 2.8% in 2022, and predicted growth in goods trade volumes would drop from 4.7% to 3%.

“In a crisis, more trade is needed to ensure stable, equitable access to necessities. Restricting trade will threaten the wellbeing of families and businesses and make the task of building a durable economic recovery from COVID-19,” WTO Director-General Ngozi Okonjo-Iweala said in a statement.

The WTO is not alone in its pessimistic outlook for 2022. The International Monetary Fund (IMF) also slashed GDP forecasts to 3.6% this year, down from its original 4.4% predication. The IMF attributes the loss mostly to the war, but notes that inflation and supply disruptions are no help.

“The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution,” said the IMF. “At the same time, economic damage from the conflict will contribute to a significant slowdown in global growth in 2022 and add to inflation. Fuel and food prices have increased rapidly, hitting vulnerable populations in low-income countries hardest.”

2. Supply Shocks Heard Around the World

usinesses can expect supply chains to get worse—yes, worse—in the coming weeks partly due to Covid lockdowns in China, experts warn. “Even with air and ocean ports open, the length of the shutdown could make this iteration the most significant logistics disruption since the start of the pandemic,” the shipping company Freightos said in an update to clients this week.

China has a strict zero-Covid policy causing full lockdowns in a number of large regions such as Shanghai and Jilin facing full lockdowns for parts of March and April, according to Fitch Ratings. Some businesses have considered nearshoring product in attempts to mitigate the impact of ongoing supply disruptions. But Shaun Papperman, CCE, CCRA, CICP, director of order fulfillment at Baltimore Aircoil Company, Inc. (Jessup, MD) said that approach raises some questions.

“Are you really willing to pay higher prices for a long time, which comes along with [nearshoring], or will there be a temptation to start cutting costs, especially as economic growth slows? There will be pressure on margins, and we might go right back to where we were,” he pointed out.

3. Fighting the Inflation Beast

While economic growth slows, inflation soars to record heights around the world. U.S. consumer prices increased by 8.5% in March from a year earlier, its highest level since 1981. In the U.K., annual inflation reached a 30-year-high last month hitting 7% with prices rising by 1.1% in March alone, according to Wells Fargo. “In April, headline inflation is likely to accelerate even further, as another spike in energy prices is expected to take effect for consumers. The Bank of England (BoE) expects inflation to reach 8% in Q2-2022, and potentially climb even higher later this year depending on the path of energy prices.”

Asia also is feeling the heat of rising prices. “Readings in China, India, Indonesia, the Philippines, Thailand and South Korea have all recently risen more than forecast,” reads a WTO article from the WTO. “New Zealand has raised interest rates over price increase concerns. Argentina's central bank has raised its key rate to 47%—its fourth increase in interest rates this year—as inflation hits a 20-year high.”

Economists are unsure when inflation will return to normal, but it likely will not happen as long as companies struggle to meet consumer demand. “While the beginning of the end of easy money may help curb inflation on the margin, investors should prepare for inflation to linger,” reads a Forbes article.

Higher oil prices, persistently strong demand shock and ongoing supply-chain bottlenecks have led to decreases in global trade forecasts, according to the Allianz Trade Global Survey. Expectations for global trade growth have lowered from 6.0% to 4.0% in 2022.

The Russia-Ukraine war also has led to a rise in risks for European exporters, according to the survey. Businesses are mostly concerned about the impact of higher energy prices on profitability because invoices for these materials could cancel out profits. Furthermore, Omicron outbreaks since the start of the year have caused GDP growth to decrease by 0.4 percentage points in 2022, the survey finds. Expectations for China’s GDP growth now sit at 4.9% in 2022.

More Covid outbreaks have prolonged supply chain bottlenecks as the volume of container vessels anchored outside Chinese ports remained above normal in March and April of this year, according to the survey. “The monthly average surplus amounting to 2.2% of annual throughput.”

Supply chain bottlenecks have extended to Europe following Russia’s invasion and China’s persistent Covid outbreaks may be felt on a larger scale moving forward, survey said. Delivery times for suppliers may remain elevated but should remain below the 2021 peaks.

According to respondents, companies in various countries indicate that shortages or high costs of inputs will become more of a challenge following the onset of the war:

• Italy—51% vs. 24% pre-war
• U.K. and Germany—47% vs. 32% pre-war
• France—38% vs. 26% pre-war

Changes in monetary policy have caused an expected rise in funding costs as well with 42% of respondents indicating higher funding costs will be a challenge in 2022. Payment terms for exporters in Germany have already risen by 33 percentage points to reach 66% followed by the U.K. rising 25 percentage points to hit 47%, and Italy rising by nine percentage points.

Despite low levels of insolvencies in 2021, global insolvencies are projected to rise by 10% in 2022, the survey finds. Insolvency expectations have skyrocketed for exporters in many areas:

• Germany—up 28 percentage points
• U.K.—up 26 percentage points
• France—up 23 percentage points
• Italy—up 20 percentage points

Exporters are now seeking other solutions in response to these ongoing issues as 47% of exporters state they will look for new energy suppliers, per survey respondents. Other projected strategies include 41% of respondents searching for new suppliers in nonenergy commodities and 41% increasing their prices. Strategies for exporting following the war are projected to involve two main elements: digitization and ESG adaptation.

Digitization

Digitization became increasingly popular following the initial shutdown from Covid-19. In fact, “43% of global firms stated they used digitalization to cope with the fallout of Covid19,” the survey says.

The trend will likely continue as nearly all respondents indicated that their organization is currently engaged in digitization. However, “While respondents from most countries use digitalization to increase productivity, Chinese firms aimed at increasing the resilience of supply chains and German ones to reduce costs.”

ESG Adaptation

ESG adaptation has yet to take hold among responding firms, according to the survey. Attempts to adjust relations with suppliers were noted as a preferred strategy over adjusting their own processes. However, Chinese firms seem to be the most interested in adopting ESG in comparison to global competitors.

“We find that only a small share of exporters plan to increase prices to compensate for carbon taxes, although a majority of Chinese firms declare so,” the survey says. “This tends to underline that carbon prices are still too low to lead to a major change in global trade practices.”

Implications from the conflict between Russia and Ukraine have a wide reach, but the global auto industry may take one of the biggest hits. The war caused auto industry experts to cut production and sales forecasts further, even though the industry was already struggling prior to the invasion.

S&P Global Mobility cut its global auto production forecast last month by 2.6 million vehicles for 2022 and 2023 as a direct result of lost demand in Russia and Ukraine as well as worsening semiconductor shortage issues and the loss of Ukraine-sourced automotive wiring harnesses and other components, the report reads. “With Russia-Ukraine war comes more reminders of the fragility of the world's automotive supply chains.”

The “complete loss of Russian palladium” also has the potential to create major obstacles for the automotive industry. Russia produces 40% of the world’s palladium, most of which is used in vehicle production. “If Russian palladium supply were suddenly interrupted (due to a Western boycott, or Russia stopping supply), production of all vehicles using such sourcing (including hybrids) could potentially stop,” the S&P report continues. “Although platinum is an alternative element, it is similarly expensive and also largely Russia-originated.”

Some regions will see even less vehicle production than others. S&P Global Mobility reduced the vehicle production outlook for Europe by 498,000 this year. And in China, production of vehicles is expected to drop by 396,000 units. "Currently the greatest risk to the outlook comes from the threat of further or prolonged lockdowns in mainland China and the contagion into already stressed global supply chains," Mark Fulthorpe, Executive Director, Global Production Forecasting, S&P Global Mobility wrote in a statement.

Vehicle sales France, Italy and Spain plummeted in March, according to the European Automobile Manufacturers' Association (ACEA). Spain saw sales drop by nearly 40%; Italy, roughly 30%; and France, almost 20%. Sales fell 17.5% in Germany and 14.3% in Britain.

 

Week in Review Editorial Team:

Diana Mota, Editor in Chief

Annacaroline Caruso and Bryan Mason, Editorial Associates