Week in Review

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Germany takes step closer to gas rationing. Germany has taken a step closer to gas rationing after a drop in supplies from Russia. The country has triggered the  “alarm” stage of an emergency gas plan to deal with shortages, Germany's economy ministry said. (BBC)

European steel prices slide to pre-war levels. European steel coil prices continued their downward slide, in May and early June. Service centres and distributors refrained from buying, fearing further price erosion. Mills sought orders, in the face of reduced demand. (HSN)

Ukrainians cheer nation’s EU candidacy amid wartime woes. The European Union’s decision to make Ukraine a candidate for EU membership offered war-weary Ukrainians a morale boost and hope of a more secure future Friday as the country’s military ordered its fighters to retreat from a key city in the eastern Donbas region. (AP)

UN chief warns of ‘catastrophe’ from global food shortage. The head of the United Nations warned Friday that the world faces “catastrophe” because of the growing shortage of food around the globe. (AP)

Israel set for possible fifth election in four years as PM Bennett moves to dissolve parliament. Israel's Prime Minister Naftali Bennett has effectively called time on his premiership after just a year in the job. (CNN)

‘Cold War mentality’: China’s Xi denounces ‘abuse of sanctions.’ Chinese President Xi Jinping said the world should oppose unilateral sanctions and efforts by some countries to maintain their political and military power—a veiled shot at the United States and its allies over opposition to the war in Ukraine. (Al Jazeera)

Reading the market tea-leaves for global recession risks. The fastest rate-hiking cycle in decades and inflation nearing double-digits has got investors scouring market moves and data to gauge whether the world economy is headed for recession. (Reuters)

Kaliningrad row points to gradually growing Baltic war risk. On Saturday night, a Russian Border Guard Mi-8 helicopter entered Estonian airspace and flew for two minutes above NATO territory before re-entering Russia, according to the Estonian government, illustrating how tensions over the Ukraine war have spread well beyond the initial conflict area. (HSN)

Afghanistan earthquake: Survivors struggle for food and shelter amidst cholera fears. Survivors of Afghanistan's deadliest earthquake in two decades say they have nothing to eat, no shelter, and fear a possible cholera outbreak. The BBC's Secunder Kermani reports from Paktika province, the hardest hit by the disaster. (BBC)

Marseille, Alexandria and Istanbul prepare for Mediterranean tsunami. A tsunami could soon hit major cities on or near the Mediterranean Sea including Marseille, Alexandria and Istanbul, with a nearly 100% chance of a wave reaching more than a metre high in the next 30 years, according to Unesco. (The Guardian)

Boris Johnson under pressure after UK election defeats. Boris Johnson's Conservatives lost two parliamentary seats on Friday, a crushing blow to the governing party that prompted the resignation of its chairman and intensified doubts about the future of Britain's prime minister. (Reuters)

Bulgaria's political turmoil could sink a deal to solve EU veto row. The long-running saga around Bulgaria's veto of North Macedonia beginning negotiations to join the European Union looked to be moving towards resolution on Wednesday, writes Georgi Karamfilov from Euronews Bulgaria. But just as an agreement appeared on the horizon, Bulgaria's government collapsed cloaking the issue in uncertainty yet again. (euronews)

 
 

How US Inflation Impacts Global Trade

Annacaroline Caruso, editorial associate

Inflation has successfully baked itself in to virtually every country’s economy, thus making global trade more complicated. But high prices in the U.S., and how the government chooses to tame those prices, has massive influence around the world.

“When the U.S. raises rates, the rest of the world has to raise rates as well,” said Jay Tenney, managing director of Trade Risk Group (Irving, TX), during this month’s FCIB Global Expert Brief. “It is a global phenomenon. No matter what is said about the dollar, it is still by far the major trading currency in the world.”

Inflation in the U.S. is high. But prices are just as steep in other countries, and in some cases worse. According to the Pew Research Center, consumer prices have risen substantially in roughly 44 countries surveyed pre-pandemic. Israel has the highest inflation, sitting at more than 25 times the inflation rate it had in 2020. The U.S. has the 13th highest rate out of the 44 countries.

“Regardless of the absolute level of inflation in each country, most show variations on the same basic pattern: relatively low levels before the Covid-19 pandemic struck in the first quarter of 2020; flat or falling rates for the rest of that year and into 2021, as many governments sharply curtailed most economic activity; and rising rates starting in mid- to late 2021, as the world struggled to get back to something approaching normal,” the analysis reads.

Primary drivers of the four-decade-high inflation we see today are both similar and different than that of the 70s, Tenney said. “The main issue is there is too much liquidity in the market and financial system. We are coming out of an era of easy money from government programs and Covid stimulus.”

High prices are beginning to change consumer behavior, which will have upstream effects on businesses and likely some of your customers, he added. “Our clients are starting to see demand destruction because prices are too high, and as inputs go up in price it becomes cost prohibitive for the buyer to make the product.”

Trade credit insurers are starting to take note of the increased risk, especially as the Federal Reserve continues aggressively hiking interest rates, Tenney said. “I’ve had underwriters approach me and say ‘This customer’s financials look good in the rearview mirror, but when I look forward in their industry, all I see is hurricanes.’ The tried-and-true way to combat inflation is to raise interest rates, but the Fed should have done it a year ago. Now all signs are pointing toward a recession.”

While inflation strengthens the dollar, it might not be an entirely good thing. A strong dollar means your product is more expensive overseas, and “it will be harder for foreign buyers to convert to dollars. We’ve seen clients who traditionally trade in dollars will help their customers by selling product in the local currency and use their bank to hedge that. Then charge the fee to foreign client and can continue to trade. Then don’t have to worry about the convertibility risk.”

“If you can be a little more creative, you can get additional business and lock in your clients if you are able to provide a service that addresses some of these financing issues,” Tenney added.

FCIB members can watch the entire Global Expert Brief on-demand. The next expert brief takes place July 15.

UPCOMING WEBINARS




The Economic Cost of a China-Taiwan Conflict

Annacaroline Caruso, editorial associate

Taiwan plays a key role in global trade, especially when it comes to producing the coveted computer chip, which is used in automobiles and phones. And right now, the risk of extending credit in Taiwan is fairly low.

According to FCIB’s Credit & Collections survey, 53% of credit professionals who do business in Taiwan are not experiencing payment delays, and 37% say payment patterns remain the same. Any payment issues that do occur are usually due to billing disputes (47%) or supply chain issues (27%).

However, if China ever invaded Taiwan like it has threatened to do in the past, the story of global trade could be very different. One survey respondent suggests getting “confirmed letters of credit due to political risk,” when doing business in the country.

Tensions between China and Taiwan have grown steadily over the years, as China insists the self-ruled island is part of its territory. Nearly 30 Chinese warplanes flew over Taiwan’s air defense identification zone last week, CNN reported.

China also abruptly banned all imports of grouper from the island, a move Taiwan officials call politically motivated, per The New York Times. “The latest ban is an acute reminder to Taiwan of the risks of being overly economically dependent on the mainland,” the article reads. “Trade between the sides has grown over the past decades, especially under the previous administration in Taiwan, when relations were friendlier.”

While many experts say the chances of a full-blown Chinese invasion are low, as we learned with Russia’s invasion into Ukraine, nothing is impossible. “Taiwanese officials have described current tensions between the two as the worst in 40 years,” reads an article from the Globe Newswire. “Taiwanese policymakers have also accelerated discussion around reforming its reservist and conscription training to increase the overall readiness of its military.”

According to HX Global, if conditions between Taiwan and China deteriorate, businesses should take the following steps:

  • Stay abreast of political developments and monitor reliable news or intelligence sources. Follow output from local media, embassy bulletins and establish a direct information network.
  • Ensure that detailed contingency options, business continuity, crisis management and evacuation plans are in place.
  • Maintain an organizational public stance of neutrality to avoid unwanted attention where it does not compromise wider business initiatives.
  • Establish an internal communications plan. Consider setting up instant messaging groups where information can be quickly disseminated to employees in the event of a deterioration of the security environment.
  • Discuss and review Political Risk Insurance (PRI) coverage for policyholders in case of business losses in the event of a China-Taiwan conflict.

The global economy is still grappling with the shockwaves of the Russia-Ukraine conflict. But Taiwan’s top trade negotiator, John Deng, told Reuters that a China-Taiwan conflict would be much more harmful. “The disruption to international supply chains; disruption on the international economic order; and the chance to grow would be much, much (more) significant than this one,” Deng said.

The next FCIB Credit & Collections survey is now open. The countries being surveyed are Brazil, Columbia, Mexico and Nicaragua. It only takes a few minutes to participate.

International Debt Collection: Where Is the Most Difficult Place to Collect Your Debts?

Allianz Trade

Sweden, Germany and Finland are the three countries where debt collection is less complex, while Saudi Arabia, Malaysia and the UEA are the most challenging places to collect debts, according to Allianz Trade. The third edition of the trade credit insurer’s Collection Complexity Score assesses how difficult it is to collect debt.

The score covers 49 countries representing nearly 90% of global GDP and 85% of global trade and takes into consideration local payment practices, and local court and insolvency proceedings.

“In Sweden, Germany and Finland, the payment behavior of domestic companies is good and courts are efficient in delivering timely decisions, thus easing debt collection for companies,” said Maxime Lemerle, lead analyst for Insolvency Research at Allianz Trade. “This stands in contrast to other European countries, such as France and Spain, where collecting debt remains extremely complicated when the debtor has become insolvent, especially as far as unsecured creditors are concerned.”

Saudi Arabia, Malaysia and the United Arab Emirates closed the rankings in 2022. Despite some improvements in court-related complexity, international debt collection is three times more complex in Saudi Arabia than in Sweden, Germany and Finland.

The gap between advanced economies and emerging markets is still large. Indeed, 14 out of 16 Western Europe countries stand at the less severe level of collection complexity (notable). Meanwhile, the U.S. and Canada both post a Very High rating. On average, Middle East, Asia and Africa are the three regions where debt collection is the most complex.

Nonetheless, this gap has been reducing over time. “During the past four years, almost half of the countries have seen their collection complexity score decreasing (20 out of 49 countries,” said Fabrice Desnos, member of board management of Allianz Trade, in charge of credit intelligence, reinsurance and surety. “Covid-19 lead several countries to accelerate the reforms of their insolvency frameworks. We also noticed some improvements in terms of preventive restructuring frameworks such as in the UK (with the new procedure Moratorium), Australia and the EU, where the Directive 2019/1023 is currently under transposition within the different Member States. Saudi Arabia and China also showed some noticeable improvements: In these countries, the collection complexity scores reduced by 3 points and 2 points, respectively.”

The global collection complexity score has decreased over the past four years: it now stands at 49, which is 2 points less than in 2018. However, despite this positive trend, international debt collection remains very complex overall.

Combining each country’s collection complexity score with their share of trading partners, Allianz Trade also calculates the exposure of exporters to international debt collection complexity. Finland, Austria and Norway are the least exposed as their trade partners are countries where debt collection is less complex. At the other end of the spectrum, Asia stands out with seven countries topping the list of those most exposed to debt collection complexity due to international trade: Hong KongIndonesiaThailand, Malaysia, JapanSingapore and India.

 

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Week in Review Editorial Team:

Diana Mota, Editor in Chief

Annacaroline Caruso, Editorial Associate