C-Suite: Asia remains engine of global growth

fabrice-desnos-asia-pacific-euler-hermes

Euler Hermes expects the Asia-Pacific region to drive global growth in 2015 although a slowdown in payments in China is a concern.

The global recovery will remain on track, with GDP growth at 2.7%. After six years of intense depression, a weaker euro, lower oil prices and cheap financing costs are supporting the relative recovery in Western Europe ( growth of 1.3% growth is expected in 2015).

Eastern Europe is affected by the recession in Russia, while uncertainties remain around growth momentum in the US, the UK, China and Japan.

Asia however remains the global growth engine with 4.8% GDP growth expected in 2015 (after 4.4% in 2014).

This overall relative improvement has benefits for companies, especially in the retail and transport sectors, with global insolvencies expected to decrease by 2% in 2015. Yet, seven out of 10 countries continue to experience more insolvencies than in 2007.

Globally corporate bankruptcies still stand 12% above their pre-crisis levels. Insolvencies in 2015 are expected to increase in Eastern Europe by 15% and 9% in  Latin America, while the US and Western Europe are expected to decline by 7% this year.

In the Asia-Pacific region the level of insolvencies remains relatively low compared, with the notable exception of China where the slight deterioration (up 2%) observed last year is expected to gather pace in 2015 to 5%.

Trade is never risk free and we see three hazards for companies to watch out for in 2015: prices, protectionism and non-payment.

Deflationary pressures and foreign exchange volatility will continue to affect trade growth. The declining trend in major commodity prices worldwide, the ongoing price competition when demand and purchasing power are sluggish are eroding companies' margins.

Political events and foreign exchange volatility, (for example in Russia and Switzerland) will continue to create shocks that will put companies' resilience and risk management practices to the test.

While the globalisation of free trade continues with three new super free trade agreements being negotiated covering around 80% of global GDP, the temptation of protectionism and the implementation of potentially trade restrictive measures has been on the increase.

Each of these measures, whether politically motivated or not, have the tendency to create distortions or localised shocks - quickly exposing corporates.

Meanwhile, payment delays as measured by a rise in days' sales outstanding, have worsened worldwide in 2014. This phenomenon is evident in China where the tightened financing environment has made Chinese buyers more frequently compensate for the lack of external financing by delaying payments to suppliers to boost their working capital.

With the number of bankruptcies globally still above pre-crisis levels, and a growing share of trade transactions taking place on open credit terms, Asian businesses' needs for protection of their receivables against the risk of non-payment is ever increasing.

The rise of payment delays and defaults in particular in China - the number one growth driver for global trade - only adds to that demand. The credit insurance market has seen high growth in Asia in the past years. In this environment, this trend is expected to continue to accelerate.

Fabrice Desnos, pictured, is head of Asia-Pacific, Euler Hermes

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