According to analysis by Crédito y Caución, GDP growth in Eastern Europe will slow by eight tenths of a percentage point in 2019, reaching 2,6%.
Global trade tensions, increased uncertainty surrounding the conflict between the United States and China, along with the risk of a possible no-deal Brexit, are putting many European economies under pressure, causing a sharp inflection in the trend of insolvencies in the region. After a 5% decrease in 2018, a 2% increase is expected in 2019.
According to the Payment Practices Barometer in the region, which is based on the opinions of 1.500 companies in Bulgaria, Slovakia, Hungary, Poland, Czech Republic, Romania and Turkey, 24% of the region's billing was outstanding at the payment deadline. This default rate reached a maximum of 42%.
Crédito y Caución believes that the diminished growth prospects for Eastern Europe will exacerbate insolvency trends. The highest insolvency levels will be recorded in Turkey (+10%), Poland (+4%), and Romania (+3%). The manufacturing sector is the most exposed, given its strong integration into the global value chain.
Customer defaults negatively affect companies' cash flows and imply the need to compensate for the lack of liquidity to carry out business activities. If access to bank financing were restricted in the short to medium term, companies in the region would offset the increased capital costs with a reduction in investment in business growth and the workforce, through layoffs or a freeze on new hiring.
The global economy continues to show its weaknesses, now experiencing significantly slower growth. Amid rising geopolitical tensions and ongoing uncertainties, the risk of lethargy in world trade is increasing. This is expected to weaken economic growth in many Eastern European countries, raising the prospects of insolvency in the coming months. In this context, strategic management of customer default risk is essential to avoid serious cash flow problems and to chart a path of safe and sustainable growth for companies.
