Week in Review

What We're Reading:

April 13, 2020

EU backs half-trillion euro stimulus, but balks at pooling debt. While EU finance ministers approved a plan to spend 540 billion euros to lift their economies, they couldn’t agree to take the unprecedented step of issuing joint bonds. (New York Times)

New data shows U.S. companies are definitely leaving China. U.S. companies are leaving China thanks to the trade war. They’ll leave even more thanks to the pandemic. (HSN)

Businesses all over the world are learning that “force majeure” is no get-out-of-jail-free card. As many companies are learning, it isn’t always so simple as declaring “force majeure” and walking away from their legal obligations. (Quartz)

Saudi Arabia’s world is coming undone. Bulls were banking on the kingdom last week, but its future role could be far more disruptive. (Bloomberg)

WTO warns of fresh financial crisis as trade volumes face 32% drop. The World Trade Organization (WTO) is warning that global trade volumes could decline by as much as a third this year as a result of the Covid-19 pandemic, affecting all regions in the world and all sectors of the economy. (Global Trade Review)

UK Export Finance extends cover to major markets after EU adjusts state aid rules. UK Export Finance (UKEF) has expanded its insurance policy to cover trade with a range of major markets, including the U.S. and every EU member state, in response to the Covid-19 crisis. (Global Trade Review)

These are the countries most affected by the falling remittances sparked by the Covid-19 pandemic. Remittances—the money immigrants send back to their home countries—will be lower this year due to the Covid-19 pandemic. Countries dependent on that cash have already started preparing for the decline. (Quartz)

Coronavirus for Canadians. Across Ontario, people are finding new ways to adapt to physical distancing and isolation lifestyle. Some businesses have come up with a creative way to keep serving customers from a distance, and it’s peak Canadian. (Narcity)

Trump’s coming oil shock: Shale can’t cut enough to save itself. If the cut is only for a very short period, the whole meeting is about legitimizing unsold oil to extract optimum political mileage. (Forbes)

Zimbabwe’s foreign currency shortage to worsen as COVID-19 upends tobacco season. Zimbabwe’s severe shortage of U.S. dollars is set to worsen as the coronavirus threatens the start of sales of tobacco, its second-biggest source of foreign exchange. (New Zimbabwe)

Understanding the impact of the COVID-19 outbreak on the Nigerian economy. Even before the outbreak, the outlook for the world economy—and especially developing countries like Nigeria—was fragile, as global GDP growth was estimated to be only 2.5% in 2020. Nigeria currently has 238 confirmed cases and five deaths as of this writing—the weak capacity of health care systems in these countries is likely to exacerbate the pandemic and its impact on their economies. (Brookings)

Economic researchers see Germany head toward deep recession. In their spring report, Germany's five leading economic institutes have described Germany's economy as "an economy in shock," saying that GDP would shrink by over 4% this year amid rising unemployment. (DW)

Currency exchange services: Four benefits for exporters and importers. Despite the fact that doing business globally is no longer as complicated as it once was, importers and exporters sometimes miss out on opportunities to increase their profit margins because of fear or lack of knowledge regarding how to handle buyers or sellers in other countries—especially with regard to using multiple currencies. (Shipping Solutions)

There has to be a return to “normal.” The global economy is not able to withstand the pandemic shutdown much longer. There are already millions out of work and tens of thousands of businesses that have been forced to close; many will be not be able to reopen.

That there has to be an end to the economic shutdown is certain—what is not so certain is how. The Europeans are now in the process of developing that strategy. Plans have been outlined in France, Spain, Belgium, Austria and several others. There are not a lot of specifics at this point, but all of the ideas thus far have some common approaches.

The assumption that has been guiding all this preparation has been that the virus either has peaked or is in the process of doing so. That shifts the emphasis from dealing with those who have been infected to those who might be coming into Europe from elsewhere and re-infecting the population. All of the plans now call for immensely strict border controls and continued restriction when it comes to travel—especially by airplane and from overseas locations. As the 9-11 attacks introduced the world to security screenings and the TSA, so this pandemic will introduce some kind of health check before people are allowed to travel.

The first phase of the reopening process will likely involve retail operations beyond what had been deemed necessary and vital. People will still be urged to keep their distance, but shopping will return on a larger scale. The next phase will be opening schools and other institutions where a modicum of control can be exercised. The school is considered a more controlled environment where hygiene can be observed. Large crowds will likely be limited for a while longer. The restaurant business will be opened, but likely with new rules on cleanliness and patrons will be seated further apart. There may be more access control to avoid crowds.

At the very top of the list is an admonition for people to take personal responsibility. Those who are vulnerable are to self-isolate and as strictly as they can. Those who are feeling even slightly ill are to isolate and seek testing or actual medical care. The rest of us are to do what our mothers tried to teach us—wash our hands and be clean.

When global AR Leader Brandy Sailers, CCE, CICP, was tasked with moving Hypertherm, Inc.’s accounts receivable and collections structure to a shared service model, she knew it was going to be a big task in an area where she lacked expertise.

“I don’t have that experience,” said Sailers, as she recalled a Credit Congress session that she attended on shared service centers. However, “At the time, it wasn’t something I really needed,” she added.

During a call with an FCIB staff member, she shared her firm’s new objective. “When I told him that I had this new challenge, he said FCIB had lots of members and resources that could help me.” 

Out of that conversation grew a new member benefit: Online best practice meetings for members. Unlike a webinar or panel discussion, FCIB’s member meetings will not revolve around speaker presentations or slides. These “get togethers” are an opportunity for members to share knowledge, ask questions, and grow professionally.

“It is always important to stay on top of what is happening in your profession,” said Ed Bell, CBA, ICCE, senior manager, credit administration of W. W. Grainger, Inc. “The best way to do this is by peer discussions. “These types of discussions allow me to share and learn what the current best practices are in the profession. Processes and procedures are always changing. You can quickly get left behind if you do not stay informed. Learning and sharing knowledge is a life-long event for those who want to be effective leaders.”

Sailers agreed. “This is really about being part of an organization and sharing best practices. I hope that other members will take advantage of this opportunity. I personally am looking forward to hearing what other people are doing as my company looks to grow.”

Sailers added that she was “very grateful to be part of an organization that does things like this for their members. It’s a valuable partnership.” 

If a member has “a question or a need, FCIB will help them find the answers,” she added. “We’re not sharing privileged information; we’re talking about our jobs, our processes, and what we do day-to-day. This is really about the power of the organization and our collective experience—sharing best practices and learning from each other.”

Repercussions from the COVID-19 pandemic have created a double shock—supply and demand—that is affecting a large number of industries worldwide, according to Coface.

The uniqueness of this crisis makes comparisons with previous ones useless because they all had financial origins, the trade credit insurer pointed out. The question is no longer which countries and sectors of activity will be affected by this shock, but rather which few will be spared.

The shock could be even more violent in emerging economies. In addition to managing the pandemic, which will be more difficult for them, they are also facing the fall in oil prices, as well as capital outflows that have quadrupled compared to their 2008 levels, Coface said.

In this context, Coface forecasts that 2020 will see the global economy’s first recession since 2009, with a growth rate of -1.3% (after 2.5% in 2019). Coface also expects recessions in 68 countries compared with 11 last year, world trade to fall by 4.3% this year, and a 25% worldwide increase in business failures. 

Companies’ credit risk will be very high even in a “best-case” scenario, where economic activity gradually restarts in the third quarter of the year, and there is no second wave of the coronavirus epidemic in the second half of 2020, the firm said.

This trend in business failures would affect the United States (39%) and all the main Western European economies (18%): Germany (11%), France (15%), United Kingdom (33%), Italy (18%) and Spain (22%).

The risks weighing on the forecast of a 4.3% decline of world trade in volume in 2020 are downward, as the numerous border closure announcements are not taken into account in Coface's forecasting model (model based on oil prices, shipping costs, confidence of manufacturing companies in the United States, and Korean exports as explanatory variables).

In the longer term, the COVID-19 crisis could also have consequences on the structure of global value chains. The main source of companies’ vulnerability in the current context is their heavy dependence on a reduced number of suppliers located in a few, or even a single country. Therefore, increasing these numbers to anticipate possible supply chain disruptions will now be a priority for companies.

For businesses, the sudden confinement measures taken by governments in more than 40 countries to stem the expansion of the COVID-19 virus, representing over half of the world's population, have had immediate consequences, Coface said.

These measures have resulted in a supply shock unlike any observed during previous major crises. The initial shock was not due to a financial crisis, but related to the real economy: people cannot work, and companies are experiencing disruptions to intermediate goods supply.

Tourism, hotels, restaurants, leisure, and transport are badly affected, as are almost all specialized distributions segments and most of the manufacturing sectors (excluding the agri-food industry). Other service sectors have been much less affected: telecommunications, water, and sanitation, to name a few.

Accompanied to this supply shock is an equally brutal demand shock. Many consumers are cancelling or postponing their expenditure on goods and services. In addition, household confidence is being weakened by the impact of confinement.

Durable consumer goods such as vehicles will likely be among the most punished by this shock. Other expenses, such as textiles and clothing, as well as electronics, are also likely to be reduced to almost zero.

At the other end of the spectrum, the consumption of agri-food and pharmaceutical products might actually benefit from this exceptional situation.

The most obvious consequence of the pandemic in the short term is the exacerbation of existing geopolitical tensions, Coface said.

The risk of a new wave of protectionist measures, targeting particularly the key sectors of the new health and economic order (e.g. limiting exports of agri-food and/or pharmaceutical products, deemed vital) cannot be excluded. The continuation of the US-China “trade war” targeting strategic sectors, notably electronics, also remains a possibility. This could be reinforced by the presidential campaign in the United States, and/or by the event of rising in social protests in one of these two countries.

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations