Trade Risk Rises in Eastern Europe
Tuesday, September 18, 2018
Eastern Europe is forecast to grow a steady 3 percent this year, mainly due to robust domestic demand. However, this strong momentum is expected to ease to 2.5 percent in 2019, as regional GDP growth eases and the export trade stimulus from the eurozone cools off. This is forecast to weigh on Eastern European businesses’ liquidity position, potentially triggering an increase in trade credit risk.
The September 2018 edition of the Atradius Payment Practices Barometer for Eastern Europe, a survey based on feedback from more than 1,400 domestic and export suppliers across Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia and Turkey, reveals that 25 percent of respondents in Eastern Europe expect their Days Sales Outstanding (DSO) to increase over the coming 12 months. This compares to 13 percent of respondents expecting a decrease over the same time frame.
A longer DSO may adversely impact businesses’ liquidity position, thus increasing B2B trade credit risk. The most worried about this are respondents in Turkey (43 percent) and Romania (30 percent).
Payment delays due to insufficient availability of funds by domestic B2B customers in Eastern Europe increased markedly (68.8 percent of respondents reported this, up from 58.4 percent last year). Nearly 31 percent of respondents reported that domestic B2B customers pay invoices late as they use outstanding invoices as a form of financing.
Moreover, domestic B2B receivables were reported to be uncollectable most often due to the customer being bankrupt or out of business (64.2 percent of respondents, up from 55.8 percent last year). However, many Eastern European respondents invoicing electronically have noticed an improvement in speed of payment. Nearly 66 percent of respondents invoiced their B2B customers online over the past year.
The survey also reports businesses’ opinions about the biggest risks to global economic growth in the coming six months. Global economic growth continues to strengthen and is forecast to accelerate 3.2 percent in 2018. At the same time, risks to the outlook have increased with U.S. protectionism, U.S. Fed policy, China’s “hard landing” and geopolitical risk growing significantly. The risk that protectionism escalates into a trade war in the coming six months rose the most concern amongst survey respondents (37.7 percent). The was most evident in Turkey (53.1 percent of respondents).