ECONOMIC CRISIS

Britain and the Economic Crisis, Crisis in EMU ,Global Imbalances

Britain and the Economic Crisis, Crisis in EMU, Global Imbalances

Britain and the Economic Crisis

London's broker-driven credit insurance market remains the European leader in providing cover against commercial and political risks, but it also acts as an economic weather vane for exporters - and the forecast, according to the market, is stormy. Even before the Russian market imploded, credit insurers were reporting that the Asian crisis was having an increasing impact on European exporters. Euler Trade Indemnity's clients now cite the previously healthy far east market as a source of late payments; the London-based insurer's latest quarterly survey of financial trends showed 12 per cent were experiencing serious late payments from Asian buyers, compared to just 4 per cent 12 months before.

After-shocks from the Asian crisis will last "for five or 10 years", affecting more than just those companies who traded directly with insolvent far east clients, says Simon Marshall, managing director of Hermes Credit Services, London arm of the German insurer. "There is also the problem of western suppliers affected by the crisis," Mr Marshall says. If the primary exporter hits Asian-related payment difficulties, economic flu is liable to be passed along the trading chain.

Also of concern is the threat of recession. Mr Marshall reports that in Britain "larger underwriters are seeing a big increase in the level of insolvencies". He says that credit insurers have been among the earliest to see the UK's early 1990s recession coming, having identified a huge upturn in insolvencies one year before the two consecutive quarters of negative GDP were recorded signalling the official start of recession.

This gloomy outlook is having an impact on margins, which are starting to move upwards despite a few insurers concerned to build market share maintaining aggressive price-cutting. Mr Marshall sees the overall trend among major players as trying to push margins upwards - which "is essential to help companies prepare for recession".

Also still to be taken into account by many UK and other companies is the advent of the euro on January 1 and the potential of the so-called millennium bomb to wreck trading chains. "The millennium time-bomb represents a new class of risk for which there is no time to gain experience," says Mr Marshall. He adds that his view is "shifting from it being a damp squib to it being a major event" that could affect everyone from a company's suppliers to its debtors' banks.

"We simply don't know what the affects will be but there are calculations which suggest it could mean a 15 to 40 per cent rise in insolvencies," he says.

This would affect even businesses that have been scrupulous in debugging their information technology networks - for example when a supplier's computers crash, leading the supply chain to break down; or in a case where payments are held up in an accounts department or bank. Such scenarios may prove critical to the health of many businesses in ...