Week in Review

September 3, 2018

Global Roundup

Brazil presidential election thrown into chaos after front-runner stabbed. Brazil’s presidential campaign was thrown into chaos on Sept. 7 as the far-right front-runner was in serious condition after he was stabbed at a rally, just a month before the vote, raising fears of increased violence in the wide-open race. (Reuters)

Trump poised to tax an additional $200 billion in Chinese imports. The Trump administration may be about to slap tariffs of up to 25% on an additional $200 billion in Chinese goods, escalating a confrontation between the world’s two-biggest economies and likely squeezing U.S. companies that import everything from handbags to bicycle tires. (Business Mirror)

Sweden's center left in slim lead as uncertain election nears. The Swedish centre-left bloc held a slim lead over the center right ahead of Sept. 6’s national election, a survey showed, but both were short of a majority and the anti-immigration Sweden Democrats could yet emerge as the largest-single party. (Reuters)

The end of NAFTA? Perspectives from Mexico, Canada and the U.S. Fourteen years ago, on Jan. 1, 1994, the North American Free Trade Agreement (NAFTA) between Mexico, the United States and Canada came into force superseding the former Trade Agreement between Canada and the United States. Comprising an area of over 21 million square meters and a population of over 500 million people, the NAFTA became the world’s largest free-trade area formed. (Global Risk Insights)

Expert analysis: How trading companies can circumvent protectionist policies. At a time of rising protectionism, there are ways in which companies engaged in global trade can legally bypass increasingly restrictive policies. In fact, for over 100 years, international traders have been following legitimate rules to obtain favorable tariff treatment. (Global Trade Review)

Italy, Spain see economic growth falter to multi-year lows. A closely watched survey is showing that the 19-country euro zone economy continued to grow at a solid tick during August despite sharp slowdowns in Italy and Spain. (Business Mirror)

Why a stronger Indonesia is still Asia’s most fragile market. Notwithstanding solid economic growth, low inflation and a proactive central bank, Indonesia finds itself in the same uncomfortable position it had during the 2013 emerging markets sell-off—Asia’s worst-hit market. (HSN)

Africa prepares to drive a hard trade bargain with EU. Increasing trade between the EU and the ACP (African-Caribbean-Pacific), particularly African countries, lay at the heart of the ambition of the Cotonou Agreement. It was supposed to be embodied by regional Economic Partnership Agreements (EPA) with the EU. (EurActiv)

Proposed tariffs on Chinese goods = headwinds for U.S. economy. During six days of public and interagency hearings held by the U.S. Trade Representative in late August, the recreational boating industry joined hundreds of other industries and businesses to express deep concern about the harmful effects of the escalating trade war, including Section 301 tariffs targeting $200 billion in Chinese imports. (Global Trade Magazine)

Germany and U.K. drop key Brexit demands, easing path to deal. The British and German governments have abandoned key Brexit demands, potentially easing the path for the U.K. to strike a deal with the European Union, people familiar with the matter said. The pound rose. (HSN)

Peru’s democracy is at stake in Vizcarra’s anti-corruption crusade. As yet another corruption scandal reverberates through Peru, polling shows that citizens are disappointed with their government and doubting democracy itself. If new president Martín Vizcarra fails to lead Peru past the wrongdoing that has plagued its government for decades, Peru could fall into a democratic crisis. (Global Risk Insights)

Russia ready to buy own debt if sanctions spark market crash. Russia is ready to take the emergency step of buying its own ruble debt if a new wave of U.S. sanctions threatens to upend the market. (HSN)

Tipping point: These charts show some of the worst currencies of 2018. Foreign currencies—especially the emerging markets—are having one of their worst years on record. Last week, Palisade Research looked at some of the worst-performing currencies of 2018. (Palisade)

Labor Shortage in Germany and EU as a Whole

Chris Kuehl, Ph.D.

One of the most divisive issues in Europe, and the world for that matter, is immigration. In most of Europe, the issue of refugees coming from North Africa, the Middle East and South Asia has been the trigger for the formation of radical populist parties that are deeply opposed to the new arrivals.

Elections have been won and lost over this issue. Europe is certainly not alone as far as this controversy is concerned as the U.S. continues to grapple with issues ranging from border walls to the fate of “Dreamers.” This is certainly not the first time that migration has been controversial, but there are some crucial differences between the issue today and in the past.

Most of the opposition in the past was rooted in fear that these migrants would be taking jobs that would otherwise be available for the local population. The periods of the most anti-immigrant feeling often coincided with periods of high rates of unemployment. This is not the case this time.

The countries that are struggling with their immigration issues are also facing extremely severe labor shortages. Simply put, there are no available workers for a wide variety of jobs in nations such as Germany, the Netherlands, Denmark, Austria, France and others. These are not small shortages. The business community in Germany alone indicates a need for at least a half million more people than are currently looking for work.

The shortages are not only in high-skilled sectors, although the lack of qualified people is acute in the high tech and medical sectors. The biggest gap is in administrative work with a vacancy rate of more than 70%. These are jobs that range from secretarial support to the clerk jobs that make the majority of the business world function.

Even as many of these tasks have been automated, there remains crucial reliance on these positions. Those who worry most about succession for business indicate that the critical issue is not just replacing the leaders, but the middle-level staff that have unique knowledge sets and experience. They are often the only people who know how certain systems work. Training new people to do these jobs requires a company willing to invest in that training and far enough in advance.

The Germans are now pushing a new set of laws that will allow the nation to address the labor shortage, but it is highly controversial. It would eliminate such provisions as having to prove there was no local option for employees and only recruiting in fields that were officially designated as labor short. The fact is Germany has a 1.2-million-person vacancy rate; it is expanding every year as people retire. The unemployment rate in the fastest-growing parts of the country is as low as 1%. It is estimated that having the required workforce would add a full point to German GDP growth.

Where will this workforce come from? The Germans want people ready and willing to work. That has not described the vast numbers of refugees and migrants that have been coming to Europe. To be sure, there are thousands of people from other nations who have entered Europe and immediately found employment. Many of those in the first wave of Syrian migration were middle class professionals and business people who adjusted quickly. But many thousands more were desperately fleeing war and deprivation and lack the skills needed to hold a basic job. Germany would like to attract people from places like the U.S., Canada and elsewhere in the developed world, but these are the nations also struggling with their own employment issues

Greek Companies Experience a Revival

Coface

With its exit from the European bailout program, Greece is looking forward to closure on eight successive years of crises. For the first time since 2008, GDP grew for four consecutive quarters.

Growth in 2017 reached 1.4%, driven by investment and dynamic external demand. A further development of 2% is forecast for 2018, despite the eurozone undergoing a slight slowdown. Greek households and businesses are anticipating these economic improvements, as confirmed by figures from the purchasing managers' index (PMI) and the confidence indicator produced by the European Commission’s Directorate-General for Economic and Financial Affairs. The PMI registered an average of 54 points during the first half of 2018, following on from 2017, when it crossed the threshold figure of 50 points (which indicates economic expansion).

This long-awaited recovery came at the cost of deep fiscal adjustments and a severe internal devaluation, which was even more marked than in Spain and Portugal. Between 2008 and 2015, Greece lost 25% of its GDP, investment contracted by 60% and the unemployment rate reached 28%. Some sectors, such as textiles, furniture and cardboard, saw their added value fall by more than 70%. On the corporate side, turnover collapsed by a third and the investment rate fell by almost 49%.

Microenterprises and SMEs, which employ over 60% of the labor force, were the most vulnerable and around 250,000 SMEs went bankrupt during the period. Business insolvencies remain an underestimated problem. The available data does not consider the commonly used pre-insolvency procedures and the judicial process of liquidation is slow. These inefficiencies are encouraging the survival of insolvent and unprofitable "zombie" companies, of which Greece has the highest share among Organization for Economic Cooperation and Development (OECD) countries.

The risk of corporate default is consequently weighing on the profitability of banks. Despite their recapitalization in 2015, Greek banks are still recording high rates of nonperforming loans.

Fiscal consolidation and internal devaluation have helped to reduce the twin deficits that caused the crisis. Public accounts have been posting primary surpluses since 2016 and the current account has been in balance since 2015. Fiscal and financial credibility has been restored and uncertainties have been considerably reduced, allowing the country to make its return to international debt markets.

There have also been significant improvements on the business side. The contraction in wage levels has helped improve the country's cost competitiveness vis-à-vis its European partners, adding fresh dynamism to exports, which grew by 27% between 2008 and 2017. This has been particularly beneficial for medium-sized and large companies in certain manufacturing industries—such as oil refining and pharmaceuticals.

One of the signals of a more sustained recovery has been the margin rate of Greek companies, which has been improving since the second quarter of 2016 and above the European average. While weak domestic demand is currently limiting the pace of recovery, 2019 should see a rapid improvement in corporate profitability ratios and an acceleration in investments.

VAI Eyes Regulators’ Role in ERP Blockchain Adoption

PYMNTS.com

Enterprise resource planning (ERP) doesn’t look like it used to. With the emergence of new corporate finance and management apps, ERPs are turning into a central repository of data collection, and according to VAI Vice President of Sales Joe Scioscia, ERP now has an opportunity to embrace tools like blockchain.

In a recent discussion with PYMNTS, Scioscia said that organizations demand real-time visibility of data across apps and systems. Blockchain’s security and data management potential makes it an attractive technology in the ERP space as providers meet data visibility demand.

“Blockchain is becoming a really interesting technology,” he said. “It can provide full visibility and transparency of the transactions you are doing as a business.”

In industries where data transparency is key for regulatory compliance, blockchain adoption might happen more quickly than some think.

“It could really add to food safety, for example, with blockchain being able to store transactions,” he explained.

Blockchain offers a chance to securely store data on a platform where all relative partners and parties can see it. Regulators’ rules for certain markets could actually encourage the adoption of enhanced data security and transparency tools, according to Scioscia.

“It will take some time for customers to understand, and to understand the benefits of, blockchain,” he noted. “There are industries, like food and pharmaceuticals, where regulations are actually going to force the hand of those companies [to adopt] that type of technology a little more quickly than others.”

Research from Oracle in its 2018 ERP Cloud Top Trends report identified blockchain as one of several technologies disrupting the ERP market. Others include artificial intelligence (AI), Internet of Things and machine learning, with 43% of survey respondents pointing to AI as an especially interesting innovation.

Reprinted with the permission of PYMNTS.com.

FCIB’s International Credit & Risk Management Summit, Sept. 16-18, in Dublin, will consider several technologies, including blockchain, that make it possible for faster and more efficient ways for trade credit professionals to work across borders

Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations