Extreme risks: "advanced poker

In terms of extreme risks, the global economy is facing major challenges. According to Euler Hermes, greater risks are circulating. This is evidenced by the latest economic report, "High Stakes Game", in which analysts predict new record levels of cash holdings in companies outside the financial sector.

In addition, companies continue to suffer from high payment delays, while insolvencies among companies with a turnover of more than 50 million euros continue to rise sharply.

Late payments in the aviation industry

"In an environment of global stability and an economic recovery finally getting underway, a high degree of divergence and risk thus lurks," said Ludovic Subran, chief economist at Euler Hermes. "The situation is coming to a head with cash holdings concentrated at record levels in some regions and industries, while the scale and frequency of large corporate insolvencies continues to rise." He cites large insolvencies in the retail and services sectors, particularly in the US, as examples, as well as rising corporate bankruptcies in China and Brazil, and prolonged delinquencies in China and the aviation industry.

"The extreme risks are increasing. We need to monitor this closely in the coming months," Subran said.

Insolvencies of large companies

Overall, analysts at Euler Hermes expect global insolvencies to fall by 1% this year, before rising again by 1% in 2018. However, average bankruptcies will rise above the average before the 2008 financial crisis in 20 countries, according to the study. After a significant decline in bankruptcies over the past three years, the global picture is one of mixed regional trends. There was also a sharp rise in insolvencies among large companies in the first quarter of 2017.

In the first quarter of this year, 74 companies worldwide with a turnover of more than 50 million euros had to file for insolvency. That is 30 more than in the first three months of the previous year. The cumulative turnover of the insolvent groups totalled €19.1bn, an increase of 34% compared with the first quarter of 2016, with the largest 20 insolvencies alone accounting for cumulative turnover of around €13.4bn and thus around 70% of the total insolvency sum worldwide in this period.

While eight of these major insolvencies were registered in the USA, Europe had to absorb the highest increase: on average, more than one in three of the major insolvencies involved a European group.

Stefan Ruf, CEO of Euler Hermes Switzerland, warns of the concrete consequences: "The insolvency of a large company can always trigger a domino effect. If service providers in a value chain are taken by surprise, they can get into difficulties themselves. This means that large bankruptcies, for example of American or British retailers, can also infect the electronics or textile industries via suppliers. No sector can be excluded from this development. That's why this wake-up call should, at best, reach every company's CFO."

Technology company with highest liquidity

Last year, liquidity positions on corporate balance sheets outside the financial sector reached a record USD 7 trillion. Since the financial crisis of 2008, cash volumes have thus doubled from USD 3.5 trillion. The increase represents an increase of almost 3% compared to 2015 and 34% compared to 2010, and in aggregate is now equivalent to almost 10% of global gross domestic product (GDP).

Regionally, the high liquidity against the backdrop of tax optimisation is distributed 30% among American companies, while Chinese companies have doubled their cash volume since 2010. The most notable increase has been in Asia-Pacific, where the share of global cash reserves has risen from just under 36% in 2007 to almost 44% in 2016. In Western Europe, the share is significantly lower and is distributed unevenly across the various countries.

The technology sector holds the highest volume of cash, according to the Euler Hermes study, overtaking the oil and gas and automotive sectors. This is particularly true in the US, where technology companies hold 71% of the global sector cash. This means that technology companies account for 916 billion of the total $2.1 trillion that US companies report on their balance sheets. By comparison, cash positions in the machinery and equipment and household appliances sectors have declined sharply.

Euler Hermes' experts will continue to monitor this development closely.

Keyword: Payment morale in Europe

Companies in Switzerland, Austria, New Zealand, the Netherlands, Denmark, the USA and Australia are among those that are paid the fastest, with average collection periods of up to 50 days. Companies in Turkey (80 days on average), Italy (85), Greece (88) and China (89) wait the longest to receive payment. China, the new laggard, has thus reached its highest level in nine years.

In Western Europe, too, companies waited at least one day longer for their receivables in 2016, with an average of 61 days. In the Mediterranean countries, however, payment practices have improved overall. The gap between the payment terms in the various European countries appears to be narrowing overall.

At sector level, the collection periods of upstream industries such as chemicals, construction, information and communications technology and mechanical engineering are above the global average of 64 days. In comparison, the metals industry recorded only an average of 56 days until payment is received.

Retailers with direct sales outlets, such as those in the food, household goods or transport segments, are also usually below the global average.

The full economic report "High Stakes Game" can be found at this Link