The COVID-19 pandemic has wrought financial disruption on an unprecedented scale. While memories of the 2008 global crash are still fresh for many businesses in Australia and New Zealand, the impact of the coronavirus public health crisis is of another nature. The fallout of travel restrictions, business closures and depressed consumer demand have all combined to chill economic activity, especially global trade.
The unusual circumstances have created challenges for many small and medium-sized enterprises that export and import with international partners. Australia and New Zealand have fared comparatively well in containing the virus, but many of the largest economies in the world, including the United States, China, the United Kingdom and Germany, have suffered devastating human and economic losses.
It has all created an extremely volatile trade environment for companies. The value chain may never be the same. Yet, solutions exist for companies to help them manage this crisis and come out on the other side prepared for whatever the economy and global trade will look like in the post-COVID recovery. Here are some insightful data points and helpful strategies for what you can do to protect your operations.
The state of the economy and global trade amid COVID-19
"World merchandise trade is expected to dramatically fall, by between 13 and 32% in 2020."
The economic impact of COVID-19 has touched all corners of the globe. According to Treasurer Minister Josh Frydenberg, Australia is expected to see gross domestic product (GDP) decline by 10% in the June quarter, the biggest fall on record. Meanwhile, China's GDP fell in the March quarter by 9.8%, the U.S. has lost more than 33 million jobs, and Italy, France and Spain have all registered their largest quarterly losses ever.
Overall, the International Monetary Fund (IMF) is forecasting the global economy to shrink 3% in 2020. This stands in stark comparison to the 0.1% loss during the global financial crisis. Our own Coface barometer predicts recessions in 68 countries this year and a worldwide increase of 25% in business failures.
Companies of just about every sector have been impacted, which has led to extreme disruption in global trade as they contend with a double whammy of supply shock and reduced demand. According to the World Trade Organization WTO):
- World merchandise trade is expected to dramatically fall, by between 13 and 32% in 2020.
- Nearly all regions stand to suffer double-digit declines in 2020 trade volumes in 2020, having already come off a down 2019 year.
How firms are coping
Despite these headwinds, many SMEs are finding ways to adapt and respond to the crisis, while still maintaining partner and client relationships. Some strategies that have proved beneficial include:
- Taking advantage of government stimulus programmes.
- Seeking certain tax deferrals that have been made available.
- Communicating with customers and stakeholders about steps taken to preserve business continuity.
- Making use of remote work, video conferencing and other virtual means to keep operations running.
"Analyse your financial situation; i.e., looking at your liquidity position, cash flow, debts, inventory supplies and access to credit."
However, each business's response is unique to its own situation. Some businesses can't as easily transition to an online model, nor might they be able to survive a precipitous decline in revenue when demand for durable or bulk goods evaporates. To find a path forward, some best practises are:
- Analyse your financial situation; i.e., looking at your liquidity position, cash flow, debts, inventory supplies and access to credit.
- Assess risks, both current and future, as well as domestically and internationally.
- Create an internal COVID-19 task force to monitor trends and develop a response.
- Pursue over-communication with value chain partners.
- Work with employees to find ways to ensure productivity and safe operations.
Can Trade Credit Insurance and other solutions help?
In such uncertain global times, the value of Trade Credit Insurance (TCI) is greatly emphasised. Essentially, TCI is a way to guard your company against losses attributable to unpaid invoices and other nonpayment of trade-related debts. With business failures rising worldwide, the risks that one or multiple value chain partners becomes insolvent are high. TCI is designed specifically to help you in these circumstances and prevent a domino collapse of your value chain. Benefits can include:
- Real-time analysis of your customers' financial health and credit risks.
- Indemnification of your unpaid debts.
- Global debt collection services for debt recovery.
But TCI is just one tool in a broad solutions arsenal that businesses will need to leverage in the present, as well as the post-COVID future. Insight into global risks is valuable, but extremely difficult to come by for small and medium-sized enterprises, which likely do not have the resources to monitor worldwide risks and ensure accuracy. Yet transparency affords SMEs an unobstructed view into their credit risks, which will help them optimise strategic planning to not only preserve business operations, but also expand them.
Looking for TCI and global risk assessment solutions? Coface is a leader in both categories, and can help your business survive and thrive. Contact us today for a free TCI quote and to learn more about our services.