FYI | Jul 10 2008
By Chris Shaw
Economic data from all corners of the globe show the global credit crisis that began last year is far from being over, with a survey by credit insurance group Atradius showing businesses around the world believe the worst is yet to come.
The group conducted a survey of businesses globally to assess how they saw the outlook for their operations in the wake of the credit crisis, with the general view being the situation remains difficult given a further tightening in credit market conditions is expected.
Just how difficult is clear from comments by Atradius Australia and New Zealand managing director David Huey, who points out payment defaults and insurance claims have doubled in the Australian market since last year, while the enquiry rate from new businesses has also risen sharply as more companies look to insure themselves against non-payment.
Businesses in 14 countries were included in the survey and among those 68% of US businesses said they had been impacted by the crisis, followed by Mexico at 60% and Italy at 58%. Both Australian and New Zealand companies have also found the going much tougher as 43% of companies in markets across the Tasman that responded to the survey pointed to a high level of impact from the crisis.
Complicating the issue for companies in the region is a relatively high exposure to subprime debt, with 38% of respondants in Australia and New Zealand indicating a direct exposure and a further 20% having an indirect exposure, putting the region behind only the US and Mexico in this category.
This may reflect the fact Australian and New Zealand companies have the highest level of securitisation of receivables of any country in the survey at 46%, which compares with 42% for the UK and 38% for both Mexico and Spain. As Huey points out it also means larger companies are more likely to be impacted by the credit crisis as they are more inclined to use securitisation as a means of improving cash flow.
In terms of industries the survey shows the highest number of companies that securitise their receivables are the basic materials and energy industries, so Atradius suggests any return to confidence in secondary financing markets should improve the growth prospects for companies in these sectors.
Tightening in credit markets as a result of the crisis has been most pronounced in Mexico, Italy and Spain, while in contrast companies in Scandinavia have reported little or no change to credit market conditions. The survey found all markets with the exception of Spain expect more short-term rather than long-term tightening in credit markets, yet only 38% of companies have adjusted their credit extension approach in light of the crisis.
With respect to the outlook going forward while a majority of companies expect a further tightening in conditions over the next 12 months the majority view is the US will suffer the most in the coming year, while most expect the Australian and New Zealand economies will be least affected. This indicates a misconception on the part of those surveyed in the view of Atradius.
Those sectors expected to feel the most pressure are the building supply and construction, industrial and manufacturing and consumer goods sectors, while globally the most expected outcome is for a small number of financial institutions to fail as a result of the crisis.
Around half the companies surveyed expect major government intervention will be required to resolve the crisis and almost 70% expect some level of intervention will be needed, while about 25% of companies surveyed are considering delays in investing in plant, property and equipment as a result of the worsening of business conditions. Companies in Mexico and Spain likely to face growth restraints from limited available capital for expansion and companies in Italy and Belgium most likely to cut back on expenses.
Economic growth is also expected to slow as a direct result of the crisis, with almost half the companies surveyed taking the view a further slowdown would be both domestic and global in nature.
