The recent study “Top or flop? 2016” marks a trend reversal in global insolvencies. Given the latest developments as world trade weakens, Euler Hermes, the worldwide leader in trade credit insurance, expects global corporate bankruptcies to rise in 2016 for the first time in seven years (+2 percent). In Germany, the number of cases is expected to stagnate in 2016 for the first time after years of steady decline and even increase slightly in 2017 (+1 percent).
The positive news, however, is that although risks may be rising, so too are German exports. Over the coming years, exports are expected to grow by 104 billion dollars – despite global trade nominally growing by just 2.7 percent in 2016 and, in value terms, actually shrinking by a further two percent compared to last year.
Formula 1 of exports: high speeds, overtaking maneuvers, high risks and danger of “jostling”
“At the moment, German exports are a bit like the Formula 1 – high speeds and increasing risks, surprise overtaking maneuvers and the danger of unexpected “jostling” from the blind spot,” says Ron van het Hof, CEO of Euler Hermes Germany, Austria and Switzerland. “Exporters are pressing hard on the gas pedal. Over the next two years, they will even post stronger export growth than China (+96 billion dollars) and gain the pole position through this overtaking maneuver. At the same time, greater risks lie in wait for them on the track. They will only win by taking risks, but they also need to be well-protected, drive carefully and employ an effective pit-stop strategy with the right partners.”
FLOP: Risk increases – three of Germany’s five main trading partners are suffering more insolvencies
Course and weather conditions vary depending on the race circuit and the economic climate. “The export trade remains risky, but without risk, it won’t work,” explains Ludovic Subran, chief economist at Euler Hermes. “Three of Germany’s five main trading partners are seeing a rise in insolvencies in 2016, and therefore an increase in risks. We predict that the frontrunner, the United States, will experience a three percent rise in insolvencies, the United Kingdom a rise of 1 percent and China as much as 20 percent. In the Netherlands and France, Germany’s second-most important trading partners, bankruptcies are falling – although they are still close to record levels in France.”
The emerging markets, where German exporters also detect growth opportunities, are also seeing a significant increase in insolvencies. Brazil holds the negative record ahead of China (+20 percent), with bankruptcies up 22 percent. Asian supplier countries follow and are heavily dependent on China: Taiwan (+17 percent), and Hong Kong and Singapore (+15 percent each), as are the South American countries of Colombia (+13 percent) and Chile (+11 percent). Insolvencies are also on the rise in Australia (+12 percent), South Africa (+10 percent), Turkey (+8 percent), Russia (+7 percent), and Greece and Switzerland (+3 percent each).
Staying home is not an option: Other countries will start from the pole position
“Staying home is not an option because export companies would have to go to the end of the line if things kick off again in markets that are currently riskier,” says Subran. “Other countries with better stamina and steadier nerves will have gained the pole position long before and stayed there. The emerging markets are aptly named – they are aspiring markets with all the associated characteristics: non-linear, volatile development with highs and lows, and significant long-term growth opportunities.”