From the COVID-19 pandemic to the invasion of Ukraine to revived tensions in the Middle East, crisis after crisis has created a challenging and uncertain environment for exporters. Could 2024 bring some light at the end of the tunnel for companies?
According to a recent Allianz Trade survey, eight out of 10 exporters feel confident about exports, despite all of the challenges overseas.
However non-payment risk is still top of mind, and 53% of companies are considering relocating supply chains due to geopolitical concerns.
“The political landscape, with elections taking place in economies that account for close to 60% of global GDP, is contributing to rising geopolitical risks and increasing uncertainties. In this context, companies are in wait-and-see mode, mostly focused on upcoming national elections. That said, supply-chain exposure can change the risk perception: by and large, companies with long supply chains and more than half of production located abroad are most worried about an intensification of the U.S.-China trade war,” says Ano Kuhanathan, head of corporate research at Allianz Trade.
“After more than a year of recession, exporters are now looking forward to a rebound in the second half of 2024 as the restocking of manufactured goods is gaining traction, along with global demand. This will also boost prices and fuel reflation: Globally, eight corporates out of 10 expect export prices to rise in 2024, thus supporting their export turnover. Our forecasts are more conservative: We expect global trade to rise by +2.8% in value terms in 2024 after a contraction of -2.9% in 2023. That’s significantly below the long-term average of +5%, reflecting the risk of disruptions in global shipping like the Red Sea crisis, as well as rising protectionism,” adds Françoise Huang, senior economist for APAC and global trade at Allianz Trade.
Key takeaways:
- In 2023, 70% of companies said they expected business turnover generated through exports to increase. But the year ended with a trade recession, with demand slowing more than expected. 2024 is expected to bring about the end of the recession, with 82% of corporates said they expect business turnover generated through exports to increase in 2024, especially in consumer-related sectors such as retail, household equipment and computers and telecom. In fact, nearly 40% of corporates expect a significant increase of more than +5% in 2024 (+18 pps vs 2023).
- When asked about the Top 3 risks that pose the greatest threat to their offshore production sites and supply chains, companies most often chose issues related to the structure of supply chains, such as complexity, concentration or competition. Risks related to geopolitics, politics and protectionism come next, followed by environmental, social, governance (ESG)-related risks.
- While 53% of respondents say they are considering relocating parts of their supply chain due to increasing geopolitical risks, fewer are actually taking concrete steps in this direction: relocating production sites does not rank among the Top 3 out of 10 actions proposed to mitigate supply chain disruption (except for Spanish and German exporters).
- There is no full decoupling from China. In fact, more than one-third of companies plan to increase their footprint in China, while only 11% of companies said it would decrease. For those that indicated they plan to find alternatives to China, the highest share of respondents indicated Asia-Pacific as their preferred region (37%), followed by Western Europe (17%). Within Asia-Pacific, ASEAN captures more than one-third of choices, while Japan, India, Taiwan, South Korea and Australia roughly share equally the rest.
- 72% of survey respondents that have supply chain responsibilities also have ESG responsibilities. Yet progress on climate targets remains slow. Only 27% of respondents strongly believe their companies have implemented ESG actions that have significant consequences on their businesses, ranging from shifting their logistic choices to more sustainable ways (26%) and developing more sustainable products (25%) to improving the climate resilience of their supply chains (23%).
“We found that globally, close to 70% of corporates are paid between 30-70 days with the UK, France and the U.S. being slightly more numerous than peers. In a context of lower growth, trade disruptions and geopolitical uncertainty, 42% of corporates are now expecting the length of export payment terms to increase in the next 6-12 months. Longer payment terms mean stronger pressure on cashflow, and the situation might even worsen. Moreover, 40% of respondents are expecting non-payment risk to rise in 2024. This is in line with our forecast for global business insolvencies to rise by +9% this year,” adds Aylin Somersan Coqui, CEO of Allianz Trade.
“Diversification has become the main strategy to build supply-chain resilience. But this brings its own risks, increasing complexity and potential choke points, and isn’t a perfect solution. For example, 48% of U.S. exporters that have production sites or suppliers in China would consider countries in Asia-Pacific or Latin America to diversify their supply chains. However, they would still be exposed to China indirectly, given its critical role as a global supplier in the manufacturing sector,” says Ana Boata, global head of economic research at Allianz Trade.
