Risk management key as Asian economies struggle with pandemic

Asian businesses need to focus on and invest in risk management now more than ever as the region battles to recover from the dramatic negative impact of the Covid-19 pandemic, says trade credit insurance group Atradius in a new report on five key Asian economies. Business insolvencies are expected to increase by 75% year on year in India in 2020 as a direct result of the Covid-19 pandemic, according to Atradius. The insurer’s latest analysis of the Indian, Japanese, Vietnamese, Thai and Indonesian economies does not make for comfortable reading for any international company that is active in the region. Atradius points out that the virus has hit an already weakening Indian economy that grew by just 4.9% in 2019, the lowest annual increase in more than six years, because of a “sharp” credit slowdown. The insurer says that in 2020, GDP is forecast to contract 5.7%. Both investment and industrial production are also forecast to contract. Exports are expected to decline by almost 13% and household consumption growth is expected to contract by about 4% this year. “Apart from agriculture, food and financial services, the business performance and credit risk of all main sectors has deteriorated, with business insolvencies expected to increase by 75% year on year in 2020,” it concludes on the outlook for India. Japanese GDP is expected to contract 6% in 2020, driven by a drop in domestic spending and pressure on manufacturers and exporters that have suffered from the global recession and supply chain disruptions. Atradius points out that, as in India, the Japanese economy already showed signs of weakness before this year, with slowing export growth, less demand from China and increased risk of protectionism. “This year, household consumption is expected to contract by almost 6%, with a forecast decrease in retail sales of more than 7%. Industrial production is forecast to contract more than 11% in 2020, with a forecast decrease in exports of more than 16%. Business insolvencies are expected to increase 13%, mainly affecting the retail, transport and hospitality sectors, while export-orientated businesses will be strained by lower demand, especially for ICT-related products,” comments Atradius. Indonesia enjoyed growth of 5% in 2019 but the nation’s GDP is expected to contract 2.7% this year. Annual private consumption growth is the main driver of Indonesia’s economic expansion and is expected to shrink by 2.3% this year, while exports are forecast to decrease by about 5%. “Lower demand from China and deteriorating prices will mainly hit producers and exporters in the mining and energy industries,” states the insurer. A sharp economic slowdown is expected this year in Thailand, says Atradius. In 2019, GDP growth slowed to 2.4% because of sluggish global trade, US-China trade tensions and the strength of the Thai baht. Looking forward, the economy is forecast to shrink 5.7% this year. Supply chain problems are another key factor for the Thai economy. “Exports – mainly electronics and automotive – affected by supply chain deteriorations and slowing demand are forecast to contract more than 16% this year. Meanwhile, industrial production is expected to decrease more than 10% and private consumption by 2.6%. In 2021, Thailand’s economy is forecast to rebound with growth of more than 7%, subject to containment of the pandemic and a recovery in the global economy,” says Atradius, on a more positive note. Vietnam enjoyed robust economic growth of 7% last year. The coronavirus pandemic is, however, expected to slow GDP growth to 2.3% this year, impacting domestic demand and exports, with tourism, transport, electronics, textiles and agriculture being the most-affected industries. Exports are forecast to contract 5% in 2020, while private consumption growth is expected to slow to about 4% (from 7.3% in 2019). “Positively, Vietnam has good long-term prospects with a shift of export manufacturing from China due to its relatively low production costs. Strong promotion and special economic zones make Vietnam attractive for business investment,” states Atradius. “The global economy has been rocked by the coronavirus pandemic, which has been indiscriminate in its international impact. With no exception, the road ahead for these five markets is anything but smooth,” commented Darren Power, regional manager for Atradius UK’s northern region. “However, risk has always been an inherent part of global trade and as firms seek to overcome the current challenges… in these uncertain times, a comprehensive risk management strategy will set businesses apart to weather these challenging times,” he added.

Risk management key as Asian economies struggle with pandemic

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