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German Imports, Exports Expected to Expand the Most

Germany is expected to drive additional imports in 2016-17, followed by the U.S. and Japan, respectively, according to Euler Hermes. China, on the other hand, “will no longer be the world’s largest purchaser and most countries are expected to import less than before,” the trade insurer said.

On the export side, due to decelerating demand, the firm also expects Germany to take the No. 1 spot when it comes to new export gains, followed by France, Ireland, Italy and Spain. “China only comes in fifth position ... showing the difficult rebound of the Chinese export machine,” it said.

“Exporting is far from being a gentle ride in the park, but companies may want to increase overseas sales and investment earnings by partnering effectively and selling directly to end-buyers, instead of generating traditional export revenues from their home base,” said Ludovic Subran, chief economist at Euler Hermes. “In addition to blue chip companies, smaller, younger and grittier firms may surprise in this new trade paradigm—since barriers to entry are now fewer than before.”

While several credit professionals who responded to the November International Credit & Collections Survey on Western Europe characterized Germany as an easy country with which to do business, one noted that its customers—particularly one large corporation—“demand” long payment terms. He suggested having a factoring or discount program to optimize working capital.

When doing business in Spain, a respondent said companies tend to pay slowly, “but you can get them to conform to paying timely to terms if you work at it and sales associates set these expectations with your customers.” Another pointed out that payments from government entities had improved, but that they could be delayed by several months.

Other countries covered in the survey include Finland, Iceland and Portugal. FCIB member login required to review survey results here.


What the Failure of TPP Will Mean

Chris Kuehl, Ph.D.

It is common for trade issues to be part of the political campaign, but this year the issues have been that much more intense. The populist streak that has emerged ensured that nobody is going to have an opportunity to say anything positive about trade deals like the Trans-Pacific Partnership (TPP). As with all trade agreements, there are winners and losers. Those who stand to lose business or market share or jobs will be the most vocal. A recent study from the White House has detailed what the U.S. will lose should the TPP be rejected as now seems highly likely. To put it in a nutshell, the failure means that Japan and China will benefit and the U.S. export sector will take a hit.

This would be a complete reversal of what had been intended. The idea was to create a Pacific trade deal that excluded China and thus cement the U.S. position with these states. The long agonizing path to its defeat gave China plenty of time to create its own Pacific pact. Now, the nations the U.S. had intended to bring closer are further apart than ever. The beneficiaries of the failure of the TPP will be China and to a lesser degree Japan as they will be capturing the markets that the U.S. once had a foothold in.

In the broadest of terms, the TPP would have been good for the farm sector in the U.S. as it promised to open markets that had been closed in Japan, South Korea and other states. The service sector in the U.S. would have benefited as well. There are provisions that open up everything from telecom to insurance to banking and law. These have been sectors that have been protected in the Asian states and these barriers would start to crumble. The losers in the pact would be some in the manufacturing community as there would be greater access to the U.S. market for the manufacturers in Asia—especially those engaged in the automotive sector. The U.S. has largely lost the consumer manufacturing sector already as U.S. companies are hard pressed to offer the low prices that consumers demand. This pact would accelerate that process.

The U.S. depends on exports for roughly 14% of its GDP (Japan depends on exports for 14.7% of its GDP). The bulk of U.S. exports are capital goods and machinery (over 65%). The purpose of pacts such as this one is to preserve the markets the U.S. depends upon. This sometimes means giving ground to trade partners in order to preserve these markets.


Russian Economy Remains Stable

Although low oil prices have affected Russia’s economy, the risk of doing business in the country isn’t impacted significantly by them, according to a recent Atradius study, Oil Price Hardly Matters for Russian Country Risk.

The study uses data from first quarter 2011 through first quarter 2016 and examines the correlation between the price of oil and Russia’s score on Euromoney Country Risk.

“As expected, the outcome of the correlation analysis found a significant positive relationship between the oil price and the economic aspects of the country risk measure,” Atradius said. “However, no such significant relationship was found for the political and structural aspects of the country risk.”

Analysts, therefore, concluded that the “stability of the country's political institutions” lessened the impact of oil prices on the Russian economy. “As a consequence, the Russian business environment has remained fairly stable, and the risk of doing business in the country has not been significantly affected,” they said.

“There remain good opportunities for businesses offering the right products and services to export to Russia,” said Andreas Tesch, chief market officer of Atradius N.V. “Higher insolvencies, and lingering trade sanctions however, amplify the importance of protecting your receivables with credit insurance or other forms of security."

A recent analysis by Credendo Group states low oil prices will likely prolong the Russian government’s struggle to finance its deficit, but that the central government’s finances “remain sound.”

Credit professionals who participated in the October International Credit & Collections Survey offered a variety of advice for doing business there. One survey taker suggested keeping a conservative credit limit and shorter payment terms. Another suggested receiving payment prior to delivery of goods. “Proof of payment is not enough, or it is a SWIFT [payment] from the bank.” If payment in advance is prohibited, “we provide a very small line with 15 days net as the payment term, which obliged them to pay us before the due date in order to get the next shipment.” Yet another shared that his company gives its dealer in Russia 180-day terms because of shipping constraints and lag times. It uses a letter of credit and builds in the transit time.


Global Roundup

EU, Canada sign historic trade deal amid protests. After seven years of negotiations, and a bumpy final landing, the European Union and Canada signed a landmark trade deal on Oct. 30. Formally known as the Comprehensive Economic and Trade Agreement (CETA), the deal removes 99% of tariffs and has the potential, backers say, to boost bilateral trade by 20%, linking the single EU market of 500 million people with the world’s 10th largest economy and a member of the G7 club of industrialized powers.
(EurActiv)

Is China repeating Japan’s missteps? China and Japan may seem to inhabit alternative economic universes. After more than two decades of stagnation, Japan is a fading global power that can’t seem to revive its fortunes no matter what unorthodox gimmicks it tries. By contrast, China’s ascent to superpower status appears relentless as it gains wealth, technology, and ambition. Yet these Asian neighbors have a lot in common, and that doesn’t bode well for China’s economic future. (Bloomberg)

U.K.'s May seeks to keep Brexit plan going despite setback. British Prime Minister Theresa May sought Friday to reassure European Union leaders that her timetable for Britain to leave the EU remains intact despite a court ruling requiring lawmakers to have more of a say in the next step towards Brexit. She telephoned Jean-Claude Juncker, the EU's top official, and German Chancellor Angela Merkel to spread the word that her plan is still to start the process to remove Britain from the EU by the end of March. (U.S. News & World Report)

Egypt floats currency, appeasing IMF at risk of enraging poor. Egypt’s central bank on Thursday said it would soon allow the country’s currency to trade freely, part of a broader effort to save a free-falling economy and combat an increasingly prevalent black market for American dollars. The move will help Egypt secure much-needed funds to shore up its economy. But Egypt’s central bank risks sparking further social unrest, since it decided to devalue the currency by nearly 50% ahead of its float, an effort to guide the level at which it should eventually trade. (New York Times)

Investors shy away from Ethiopia in the wake of violent protests. Once held up as the hot, new investment destination in Africa because of its cheap labor, plentiful water and stability, Ethiopia’s industrialization program is at risk of faltering—along with its impressive economic trajectory—as current investors reconsider their options and new ones shy away. The week’s unrest has shown the limits of the authoritarian nation’s Chinese-style development plan, which favors growth over public accountability. (Washington Post)

White House study: China trade deal worsens damage from TPP failure. The Obama administration issued a fresh warning on Thursday about the dangers of Congress failing to pass its Asian trade deal, saying that millions of U.S. jobs could be at risk if a rival China-led trade pact is enacted. In a new study, the White House Council of Economic Advisers estimated that China's Regional Comprehensive Economic Partnership (RECAP) trade deal would likely lower Japanese tariffs on Chinese goods. If Trans-Pacific Partnership (TPP) is shelved, U.S. companies would be stuck with Japanese tariffs averaging twice as high as their Chinese competitors. (Reuters)

Is the Taiwanese economy strengthening anew? Real GDP in Taiwan grew 2.1% on a year-ago basis in Q3 2016, which exceeded the consensus forecast that called for 1.8%. However, the working-age population in Taiwan is contracting at present and productivity growth has been weak due, at least in part, to sluggish growth in investment spending. Furthermore, the economic engine of China, which is Taiwan’s most important trading partner, has slowed from its breakneck pace of the past few decades, and further deceleration on the mainland appears likely in coming years. (Wells Fargo)

Post-Brexit: How will the U.K. trade with the EU? Much has been made over what U.K.-EU trade will look like post-Brexit. It’s hard to quantify how much trade or economic activity Britain will lose, if any at all, as a result of Brexit, but it’s fair to say that trade between the U.K. and the EU will remain fairly robust. The reasons for this and an outline of the possible future configuration of U.K.-EU trade were discussed in a recent paper published by Transport Intelligence. (Global Trade Magazine)

 

Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations