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WHAT GOES DOWN, MUST GO UP, AND THEN DOWN AGAIN.

I recently watched a presentation by NCI’s Economic Expert, Stephen Koukoulas. Various charts detailing statistics since 2009, showed a roller coaster ride on many economic factors. In fact, many of these charts showed significant falls in 2020, significant increases during 2021 and 2022, and now significant falls in 2023.

No wonder so many countries, industries and consumers are struggling to ‘balance the ledger’ over the past three years. The downs, then ups, then downs again, relate to:

• GDP growth – throughout the world.
• Inflation – in most advanced economies.
• Australian consumer sentiment – which is currently the lowest it’s been for two decades (even lower than the GFC and COVID periods)!
• Retail sales – which spiked during COVID have now dropped significantly with household cost pressures.
• Population growth.
• Private building approvals – fuelled by government stimulus in 2020/21.
• Business costs – relating to labour and raw material costs.

About the only indicator bucking the ‘what goes down, must go up and then down again’ trend is House Prices.

So, what does this mean for trade credit risk?

It means the ‘false economy’, created during the COVID years, is still exerting a disproportionate influence. The significant amount of money injected by government incentives contributed to a huge reduction in overdue accounts, collection actions and credit insurance claims. However, following the ‘what goes down, must go up theory’, from the end of 2022, we have seen a significant upswing in all these factors, in particular collection actions and credit insurance claims, led by the building/construction sector.

So what’s coming up now?

Our view is that we’re still in the middle of the ‘storm’ in relation to the economy balancing out further, and still have a year or two to run with regards to insolvencies.

Maybe this is why so many prudent businesses have remained locked into their trade credit insurance policies with record levels of retention. Clearly highlighting concern by business owners CFOs and credit managers about the unpredictable conditions ahead.

Kind regards
Kirk