Global slowdown drives trade growth

Trade credit insurer Euler Hermes is seeing a growth in demand for trade credit insurance linked to macro economic trends in the region.

A region characterised by open, trade-related economies with big exporters, it is especially vulnerable to falls in global demand, which have a significant impact on the region’s economies.

“Managing credit and counterparty exposures has become more important than ever,” said Gordon Cessford, regional commercial director of Euler Hermes.

“It has become the number one priority for many manufacturers, distributors and wholesalers. The reasons are clear. Accounts receivable are often the largest uninsured asset on a company’s balance sheet—they are also the primary source of revenue.

“The global economic slowdown and ‘cheap’ growth have put accounts receivable at risk and constrained cash flows. Being the number one trade credit insurer globally and regionally, we see a consistent increase in demand from companies to assist in managing their receivables and to transfer risks through trade credit solutions.”

Besides bad debt and tough credit conditions, the region faces issues resulting from China’s transition from investment and exports to more domestic-driven growth, said Mahmood Islam, senior economist for Asia-Pacific for Euler Hermes.

“This hinders growth in the region because it means that China is importing fewer products and is relying more on domestic demand to grow,” he said.

In terms of profit, companies are facing tough times because the sales are not growing as fast as they want and pricing is slack, he added.

“In terms of sales, companies are still suffering. Companies are getting credit but not as much as they would like, especially in some markets, for example the commodity market.”

A positive factor in Asia-Pacific is that the region is seeing demand growth above the average currently seen in many advanced economies and in other markets such as Latin America, where demand growth is low.