Euler Hermes Hong Kong manager Edmond Lee reflects on business sentiment in 2014 and warns turbulence is here to stay.
As we are all closing our books for 2014, we can take stock on what has happened for businesses around the world, especially when it comes to past dues, non-payments and insolvencies.
We have good news: worldwide, insolvencies decreased by 12% this year and past dues have also decreased for the first time since 2011 by almost 30%. However, we also have concerns. The false start for the global economy caused company turnovers to remain flat in too many countries.
If you add to that political hotspots where short-term financing is constrained and sluggish structural reforms in several advanced and emerging economies, we unfortunately continue to see bankruptcies around the world standing 12% above their pre-crisis levels.
Turbulence is still on and companies cannot afford to be taken off guard. What does it mean for 2015?
Well, the second half of this year offers a mixed picture as payment terms continue to increase by one day every year since 2010, reaching 73 days by year end, and non-payments went up by 23%, mainly because of China and Russia.
We expect insolvencies to continue to decrease in 2015 but only by 3% this time as growth, trade and financing will only pick up moderately, and potential headwinds on demand, liquidity and politics are looming.
When you break down these results by industry, you understand why the devil is in the detail: stories differ markedly across sectors and countries.
Examples are: the continued severity of bankruptcies in the commodities sector because of low oil prices is causing margins to fall very rapidly; the restored confidence in the UK offering solace to the retail industry after years of painful restructuring; and the protracted domestic crisis in Italy.
This global mess is not new unfortunately, but we are better informed and more and more connected to one another. An average business can operate from the UK with US shareholders, Chinese providers and Russian clients, making the life of the chief financial officer much more interesting than before.
It is all about differentiating the signal from the noise, and enriching the toolbox to be prepared for adversity. We all like weather analogies - and economists are similar to the weathermen when it comes to accuracy.
If you stayed in when it was raining, it would be foolish to miss out on sunny intervals because you did not go out, wouldn't it?
Understanding what is really risky and what is not is essential. Over-reaction or generalisations are either dangerous or mean forgoing important opportunities in today's world.
Edmond Lee, pictured, is general manager Euler Hermes Hong Kong
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