Europe wide search for growth

Tom Rolfe, from LDPA Credit Insurance, provides their take on GDP figures and what it could mean for you.

It didn’t come as any great shock when the UK’s GDP figures for Q1 2012, released at the end of April, showed that the UK economy had slipped back into recession.  This news was unremarkable as the UK economy has had the feel of “bumping along the bottom” for 6 quarters now (between Q4 2010 and Q1 2012 the UK economy has shrunk by 0.5% according to official figures) so plus or minus a bit doesn’t change the mood or the feel of the business environment.

Also at the end of April, Deloitte published their quarterly CFO survey – the survey took place between 9th and 26th March and 136 CFO’s participated including 53 from FTSE 250 companies. The results make interesting reading – some individual answers and some as a general view of the business environment. Individual answers that catch the eye (this survey was conducted at the end of March):

• CFO’s assigned a 30% risk of the UK economy suffering a double dip recession
• There has been a 75% swing in optimism amongst CFO’s about their own company’s financial prospects (from -50% in Q4 2011 to +25% in Q1 2012)
• 30% of CFO’s are operating defensive strategies (boosting cashflow, reducing costs) compared with 22.5% adopting expansionary strategies
• CFO’s thought there was a 26% chance of any of the existing members of the Eurozone not being in the single currency by the end of 2012. 68% then said that a member leaving the Eurozone (Greece!) would have an effect on their business and 69% had made some preparation for a member leaving the Eurozone.

As a general view of the business environment, the picture is a little confusing – CFO’s have a generally positive outlook for their own companies, yet low expectations of the economy as a whole. There is a neutral position on capital expenditure amongst CFO’s, yet the Office for Budget Responsibility has cut its forecast for growth in UK Business Investment during 2012 from 10% (the forecast in June 2010) to 0.7% (forecast figure from March 2012).
All in all, it looks like there is a great deal of uncertainty about what 2012 might bring and little sign of growth either in the UK or in the Eurozone. Individual companies are optimistic about their own situation but not about the general economic outlook and not optimistic enough to be investing.

The insolvency statistics released for Q1 2012 show an increasing level of corporate insolvencies – a gently increasing number running at something like 30% - 35% higher than pre credit-crunch levels. Some of these insolvencies are well signposted though many come completely out of the blue. Managing trade credit risk will remain critical to many businesses as uncertainty continues and (more importantly) as and when there is a return to growth.

To find out how credit insurance can benefit your company, please contact
Tom Rolfe at LDPA Credit Insurance
tom@ldpa.co.uk
01275 872 553