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Global Trade Finance under Strain

Global Trade intelligence Unit

April 29th, 2020

Euler Hermes, one of the world’s largest providers of international trade finance announced this morning that their economists are predicting a dramatic drop in global GDP in 2020, resulting in ‘unprecedented trade losses and the worst global recession since World War II.’

If the global economy contracts 3.3%, it would be the equivalent of Japan and Germany’s GDP combined. The Financial Times reported on this story and highlighted the risk of trade finance drying up as global banks reassess their loan books and move to a more ‘risk off position.’ The paper went on to say that local banks are struggling to access dollar liquidity (a story this unit reported on several weeks ago).

What does this mean for exporters? Firstly, exports will be an important component in any country’s recovery and governments will look to support and promote healthy exports in the coming months and years. For companies exporting or who are already exporting, protecting their exports in going to be critically important. One way to achieve this is through credit insurance. Credit Insurance covers the risk of non-payment for an exporter – the risk of not being paid for the goods they export or will not receive the goods they have paid for.

Trade finance will come under increased strain in 2020 and into next year. Governments will need to step in with its own trade finance support. Canada’s Export Development Canada (EDC) and its service delivery partner Elevate Export Finance Corp are a good example of this.

We will continue to monitor export trends and report back on updates.

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