Understanding the Economy's Impact on Trade Credit and Finance

Coface's Kenneth Moyle recently penned a thought provoking column which you can read on World Trade Magazine's site. In it, he argues that "the current crisis in international credit markets and the slowing economy have challenged trade credit insurers" despite new levels of interest in global trade credit insurance products. According to Moyle, "the global trade credit insurance carriers such as Coface protect billions of dollars of short-term trade at any given time. Faced with an uptick in claims from the increase in business bankruptcies and slowing trade payments, the insurance carriers have reacted to the deterioration in the credit environment by reducing exposures on the most vulnerable companies and reinforcing basic disciplines in underwriting new credit limit requests." In addition, "company payment incidents, the ability of companies to pay invoices on time and a key indicator tracked by Coface, have clearly declined … Overdue payments in Portugal, heavily dependent on trade with Spain, have increased twofold … And in Scandinavia, Denmark is vulnerable due to a fragile construction sector and high levels of household debt." So will the credit crunch escalate in 2008? And will it continue to have a material impact on global trade? When I shake my magic eight ball -- I had to pawn the crystal one -- it says "concentrate and ask again". Go figure.

- Jason Busch

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