Week in Review
March 23, 2020
Coronavirus: Border closures “may show what a full-blown trade war looks like.” International Chamber of Commerce chief says moves to curb the contagion are having same impact on world economy as protectionism. (SCMP)
Contagion of fear, uncertainty infect global financial markets. The rapidly deteriorating health of the financial markets is being driven by a contagion of fear and uncertainty about a global pandemic that’s infecting the economy in ways that seemed unfathomable just a month ago. (Business Mirror)
A global rush into the U.S. dollar is driving extreme market moves and a temporary shortage. The dollar continues to surge against other currencies, as institutions and companies around the world rush to draw down credit lines and seek dollars for funding needs. (CNBC)
Thanks to sanctions, Russia is cushioned from virus’ economic shocks. Years of economic isolation and bulging financial reserves have positioned the country to ride out the coronavirus panic and bounce right back. (New York Times)
U.S. won't suspend China tariffs during coronavirus outbreak. "There's no reason" to suspend tariffs on billions of dollars worth of imports from China, President Donald Trump said at a press briefing Mar. 18. The comments came after 160 businesses and organizations wrote a letter to the president requesting the suspension of tariffs to "mitigate the economic harm from the spread of the coronavirus." (Supply Chain Dive)
Coronavirus crisis is crushing global GDP growth. The coronavirus crisis is crushing global GDP growth according to Fitch Ratings in its latest quarterly "Global Economic Outlook." (Fitch)
The U.S. Fed is extending its currency exchange program to more central banks around the world. The Federal Reserve said Mar. 19 it will extend its currency exchange program to other central banks around the world as the demand for dollars intensifies. (CNBC)
U.K. pound “utterly crushed” by Brexit, U.S. dollar shortage and monetary policy. The U.K. pound has been “utterly crushed” by the Brexit trade talks, monetary policy and a U.S. dollar shortage amid the coronavirus outbreak, according to analysts. (The National)
Spotting coronavirus-related phishing emails. Amid widespread public concern and constantly evolving news about the COVID-19 pandemic, cybercriminals are finding new fodder for phishing campaigns. (Risk Management Monitor)
Will COVID-19 turn Germany’s export-oriented economy into a weakness? The COVID-19 crisis is hitting Germany and with it the export-oriented medium-sized companies and world market leaders. (EurActiv)
Chinese exporters on track to normalizing production but face headwinds abroad. Chinese exporters are on track to resume full operations but face weakening external demand and falling orders as the coronavirus pandemic disrupts global production and consumption, an official at the country’s commerce ministry said. (HSN)
European elections in a time of coronavirus. Among the many things affected by COVID-19 is the electoral process. As Americans debate the wisdom of continuing primary contests for the Democratic presidential nominee, European leaders are struggling with scheduled local, regional, parliamentary and presidential elections. Thus far, most countries have erred on the side of caution. (Brookings)
Amid COVID-19 recession concerns, U.S. aircraft tariffs come into effect. The Trump administration enacted its planned duty rate increase for aircraft imported from the EU on Mar. 18, amid the continuing spread of COVID-19 and fears of a subsequent recession. (EurActiv)
Meanwhile—Back in China
Chris Kuehl, Ph.D., NACM Economist
It was only a few weeks ago that everything happening in China was front-page news in the U.S. That was before the COVID-19 crisis finally made it to the shores of the U.S. Suddenly, the issue in China seemed to fade away. The fact is reactions to the virus in China will present the best opportunity to understand what happens next in the U.S. and the world as a whole.
The most encouraging part of this connection is there has been significant progress in the last several weeks. There has been better containment, fewer new cases and better data in terms of how it spreads and what the impact on health actually is.
There have been four developments in just the last 10 days that bear examination. The first is that new incidents of the disease in the Wuhan area have dropped to less than 5% of what they were two months ago. The peak seemed to arrive two to three weeks ago, and the rate of infection has been falling fast.
This decline has been attributed to the warmer temperatures and the extensive use of isolation and quarantine. The fact that President Xi Jinping felt able to visit the region signaled the threat of infection was under control. Some of the restrictions have been lifted, and some businesses have resumed activity. China has not declared an all-clear, but it seems close.
The second development is China has started to close the emergency hospitals that had been established to deal with the crisis, and the medical community is no longer declaring a crisis in terms of treatment. There are no longer shortages of beds, equipment or people. There are still many people undergoing some form of treatment, however. There also remains an expectation that the elderly patients may die. Those with compromised lungs or weakened immune systems remain at high risk. Most of the population in the region has been tested and it seems that roughly 15% to 20% have been infected. The majority of them have been treated at home.
The third development has been the result of research by the Chinese, the World Health Organization (WHO) and others. The initial assumption was fatality rates of COVID-19 were roughly three times deadlier than the flu with a fatality rate of 2.5%. The research in the Wuhan region now shows that fatality rates are 1.4%, lower than the flu, SARS, MERS and other viruses. The data also suggests that getting infected is harder than originally assumed.
That is the fourth development. One of the key questions has been how people contract the disease. It was understood early on that most infections occurred as a result of physical contact with the virus. Touching a surface hosting the virus would allow it to transmit to someone. That is still the most common way to catch it—the question was whether it also transmitted through the air. The data now suggests that it can transmit that way, but only for short distances—as someone sneezing or coughing in your face. The droplets appear to be heavier than other viruses and don’t travel far or for long. It has also been determined the virus dies within three to five hours unless conditions are ideal.
None of this is to say that there is no longer a threat in China or that everything will soon calm down, but the latest data would suggest a considerable improvement over the situation even a few weeks ago.
Credit Congress Spotlight Session: Take Your Game
to the Next Level—Using Emotional Intelligence to Advance Your Career
Speaker: Jake Hillemeyer, Dolese Bros. Co.
Duration: 60 minutes
Credit Congress Spotlight Session:
When and If to Help a Distressed Customer
Moderator: Chris Ring, Panelists: D'Ann Johnson, CCE, A-Core Concrete Cutting, Inc. and Eve Sahnow, CCE, OrePac Building Products
Duration: 60 minutes
Get Yourself Ready for 2024 - Goal Setting & Future Planning
Speaker: Hailey Zureich, zHailey Coaching
Duration: 60 minutes
Global Expert Briefings: Trade Credit Risks
Speaker: Jay Tenney, Trade Risk Group
Duration: 30 minutes
Innovating Cross Border B2B Payments: It Takes an Ecosystem
Tackling business-to-business (B2B) payments friction is a journey, but when corporates take their transactions global, finding a remedy for cross-border B2B payments is a much more complicated process.
The current climate of innovators appears to be up for the challenge, however. Fintechs and banks continue to develop new solutions to address many of the biggest pain points of global business payments, from speed to foreign exchange. Even so, President of i2c, Jim McCarthy, noted that no single player has quite cracked the code of cross-border B2B payments just yet—a testament to the complexity of this market.
“It’s an area that’s ripe for disruption,” he told Karen Webster in a recent discussion. “There’s just so much inefficiency.”
Tackling B2B payments on a global scale calls for collaboration, McCarthy explained. Whether innovators develop new payment rails or create solutions that wield existing ones, they must take an ecosystem approach to easing friction.
Accelerating Ecosystem Innovation
One of the biggest challenges fintechs face in disrupting this area is in achieving the necessary scale. According to McCarthy, this is one of the biggest areas of technological innovation in today’s cross-border B2B payments space, as players look to develop the groundwork of improved global payments infrastructure by taking an ecosystem approach to disruption.
Yet in today’s fast-paced world, which is continually moving toward real-time payments, innovators are struggling to develop this ecosystem quickly enough.
“A lot of fintechs are coming into the space at scale, building the pipes, building the connections, applying technology to lower costs for end users,” McCarthy said. “But building an ecosystem takes time, even with the tools they bring to it. So how do you accelerate that?”
Partnerships and industry collaboration are key, he said.
As one of the latest industry players to embrace collaboration, i2c recently expanded into the cross-border B2B payments market through its own partnership with Airwallex. In that initiative, i2c processes multi-currency payments on the FinTech’s new B2B Airwallex Borderless Card, which uses the Visa rails to bring the solution to scale.
“Leveraging the Visa acceptance network will create more stickiness,” McCarthy noted.
He added that each partner brings something unique to the solution, allowing a single tool to tackle multiple challenges of cross-border payments. McCarthy pointed to i2c’s technology, which will enable business users to set spend controls, access competitive FX rates and make seamless payments via physical and virtual cards, combined with distribution developed by Airwallex—along with the scale, security and efficiency of the Visa card rails. The product rollout is set to begin at the end of the first quarter and extend into the second quarter of this year.
More Hurdles Ahead
Even with the scale and technological prowess resulting from collaboration, McCarthy said there are many more pain points of cross-border B2B payments for which solutions are needed. While the global card solution can find a comfortable use case in corporate travel, using a supplier payment method in accounts payable (AP) remains a challenge for cards.
It’s why continued innovation and cooperation between industry participants remains an important strategy. There are certain markets and payment scenarios that present more difficult hurdles than others. In some cases, existing payment rails may fall short at solving for these cases, particularly with cross-border transactions.
That’s where initiatives to develop entirely new rails from players like Ripple and other networks come into play.
“There is an aspect of commercial payments that is just not going to run on the one network’s rails,” said McCarthy. “That’s the hard work going on around the world, whether it be RippleNet or Visa B2B Connect. The work is to create new networks.”
While the Airwallex Borderless Card will first launch in Australia and will later move to the U.K. and Hong Kong, McCarthy highlighted Latin America as another greenfield opportunity for cross-border B2B payments disruptors, including banks and fintechs. The middle market, too, is a unique opportunity for banks to capture through FinTech partnerships, with financial service providers having historically geared their solutions toward small businesses or larger corporate enterprises. “No one’s really cracked the code” of the middle market and their global payment needs, said McCarthy.
But the more challenges that exist, the more opportunities exist for financial service providers and technology innovators to solve them. As businesses explore their partnership opportunities, they must identify geographic markets, specific points of friction and the collaborators that can bring the payment networks and value-added services required, at scale, to make meaningful progress in cross-border B2B payments.
“Whatever the rail is, you’ve got to solve for the inefficiency of banking on large global supply chains,” McCarthy said. “It’s just so inefficient. Someone out there is going to figure it out, I don’t know who, but it’s an area that’s got to change.”
Reprinted with permission from Pymnts.com.
COVID-19: Global Trade Under Quarantine
Tobias Adrian, Financial Counsellor and Director, IMF
After the U.S.-China trade feud slashed global trade growth last year to its slowest pace since 2009 (1.2% in volume terms), trade credit insurer, Euler Hermes, expects the COVID-19 outbreak to act as a major trade barrier in 2020.
According to Euler Hermes' calculations, losses in trade in goods and services will amount to USD320 billion per quarter of trade disruption. This shock is already visible in the first trade indicators that signal a recession in world trade volumes, both in the first quarter of 2020 (down 2.5% quarter-on-quarter annualized) and in the second quarter (down 1%). The sectors most affected are chemicals, transport, automotive, textiles and electronics. Apart from China and Italy, the most affected economies are Taiwan, South Korea, the Netherlands, Hungary and Indonesia. Belgium has an open and export-oriented economy. The impact on trade and on Belgian companies will be particularly significant, Euler Hermes noted.
“According to our latest calculations, losses for Belgium will amount to USD7 billion (EUR6.2 billion) per quarter,” said Ed Goos, CEO of Euler Hermes BeLux. On a global level, losses in trade in goods and services are estimated at more than USD300 billion. The impact of the coronavirus on the world economy is now greater than the equivalent of a year's worth of trade war between the United States and China.”
A (gradual) recovery is not expected before the end of May 2020.
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations