Welcome to this week’s festive foray into the ever-evolving world of trade credit – it may be Christmas in much of the world but credit continues!

This week, we’re delving into the robust resurgence of UK retail in November, exploring the transformative economic reforms in Argentina under President Milei, and deciphering the complexities of the UK housing market’s latest twists. We’ll also unravel the implications of the Eurozone’s fiscal tightening and reflect on Baker Ing’s vibrant journey through 2023.

Grab your cup of choice and settle in…

In an unexpected turn of events, the UK’s retail sector demonstrated a robust rebound in November, defying the gloomy economic forecasts. According to the Office for National Statistics (ONS), retail sales volumes surged by 1.3%, a figure significantly higher than the anticipated 0.4% growth. This surge was not just a random spike but a reflection of strategic consumer spending, heavily influenced by Black Friday promotions and an early start to Christmas shopping.

For credit professionals, this development could be a bellwether of shifting consumer trends and economic resilience. The ONS’s upward revision of October’s figures, from an initial 0.3% decline to zero growth, further underscores this resilience. Particularly noteworthy was the performance in non-food stores and household goods sectors, which saw a rise of 2.3% and 3.5%, respectively. This indicates a consumer preference for quality and durability in goods, potentially influenced by the ongoing global challenges.

The food sector presented a mixed bag of results. While supermarkets reported a modest growth of 0.1%, specialist food shops like butchers and bakers enjoyed a significant 8.5% increase. This suggests a growing consumer inclination towards specialised, possibly artisanal, choices, likely driven by an early foray into festive shopping.

For trade credit, these figures may necessitate a reconsideration of strategies. The robust sales in certain sectors present an opportunity to reassess credit risks and potentially extend more favourable credit terms to businesses in these thriving areas. However, this enthusiasm must be tempered with caution. The festive season brings a temporary surge in consumer spending, which may not accurately reflect the long-term health of these sectors.

Moreover, the varied growth rates across different sectors highlight the need for a sector-specific approach in credit analysis. While some sectors like household goods are showing promising growth, others are grappling with challenges. This calls for a more granular analysis of sector-specific trends, supply chains and consumer behaviour patterns.

November’s retail figures paint a complex picture of the UK’s economic landscape. For credit professionals, it’s a reminder that in a dynamic market environment, staying attuned to consumer trends and sector-specific developments is crucial. As the year comes to a close, the retail sector’s performance not only reflects the current economic resilience but also provides key insights for informed decision-making.

The recent decree by new Argentine President Javier Milei, heralding a series of radical economic reforms, marks a pivotal moment for credit professionals with interests in Argentina or connected to this market. Milei’s announcement, focusing on deregulation and privatisation, is poised to entirely reshape the country’s economic landscape, currently struggling with a dire economic crisis.

Milei’s approach, rooted in anarcho-capitalism, signals a significant shift from traditional economic policies. His commitment is to “return freedom and autonomy to individuals” and dismantle regulatory barriers, The privatisation plans, though lacking specific details, hint at substantial opportunities in a range of sectors, potentially including the state-owned oil company YPF.

For trade credit, the shift towards a more market-driven economy will introduce new players and dynamics, altering the creditworthiness of existing and prospective clients. This necessitates a reassessment of current credit portfolios and strategies, considering the potential for rapid changes in the financial stability of Argentine businesses.

Milei’s “shock therapy” for the economy, characterised by deep spending cuts and significant devaluation of the peso, aims to tackle the daunting challenge of triple-digit inflation. This aggressive approach, whilst aiming for long-term stabilisation, may bring short-term volatility. The devaluation of the peso, over 50% since Milei took office, presents a critical concern for foreign creditors. Exchange rate fluctuations could affect the repayment capacity of Argentine debtors, requiring closer scrutiny of currency risks in trade credit agreements.

President Milei’s economic overhaul in Argentina presents an exciting/scary and complex new chapter for credit professionals connected to this market. It demands a vigilant, adaptable approach, considering the potential impacts of deregulation, privatisation, currency devaluation, and the resultant socio-political dynamics. As Argentina embarks on this bold economic journey, staying informed and agile will be key to navigating the evolving trade credit landscape.

Recent data from the Office for National Statistics (ONS) reveals a £3,000 drop in average UK house prices in October 2023 compared to the previous year, juxtaposed with a record rise in private rental prices, this duality reflects underlying economic trends that could significantly impact risk assessment and management strategies.

The 1.2% average fall in property values across the UK, more pronounced in England and Wales, indicates a cooling housing market. This shift, more acute in London with the steepest price fall since 2009, could well be a bellwether for broader economic trends. For trade credit, this raises pertinent questions about the financial health of stakeholders in the housing sector, from developers and construction companies to retailers of home goods. The declining property prices could signal a contraction in these sectors, potentially affecting their creditworthiness and payment behaviours. This is evidenced further by the slow-to-a-crawl of planning applications.

Conversely, the surge in rental prices, especially in London, highlights a burgeoning demand in the rental market, potentially buoyed by those priced out of property ownership. This aspect of the housing market may present opportunities for trade credit. Businesses catering to the rental market, including property management firms and suppliers of rental properties, might see a boost in their financial standing.

The 6.2% rise in UK rental prices, the largest since records began, coupled with a 6.9% annual increase in London, underscores the growing pressure on households. This pressure will likely ripple through the economy, affecting consumer spending patterns and the financial stability of businesses dependent on discretionary spending.

The broader economic context, highlighted by the easing UK inflation to 3.9% in November, also plays a crucial role. The slowing inflation encourages consumer spending and business investments, potentially offsetting some of the negative impacts of the cooling housing market. We must therefore balance these contrasting economic indicators when evaluating credit risks.

In summary, the UK housing market’s current dynamics – falling house prices and rising rental rates – combined with broader economic trends, require a nuanced and cautious response from credit professionals. It’s crucial to continuously monitor these trends, recalibrating risk assessment models to reflect the evolving economic landscape. This approach not only aids in managing current risks but also in identifying emerging opportunities in the fluctuating UK housing market. There are likely tough times ahead…but opportunities too.

Recent developments in the Eurozone, marked by a shift towards tighter fiscal policies, present another complex set of considerations for trade credit professionals. As EU finance ministers agree to new fiscal rules leading to lower public spending, the anticipated curtailment of economic growth in the bloc demands a strategic reassessment of credit risks and opportunities.

The Eurozone, which saw a contraction of 0.1% in the third quarter after stagnating for most of this year, is entering a phase where restrictive budget measures are set to become the norm. This shift marks a stark contrast to the supportive fiscal policy stance adopted since the onset of the pandemic in 2020. For countries with high debt, such as Italy, the impact is expected to be particularly challenging. These countries will now have to lay out plans to reduce debt and deficits more aggressively, potentially dampening domestic demand and economic activity.

For credit managers, this heralds a need for heightened vigilance, especially in high-debt countries. The focus should be on considering the potential squeeze government spending will have downstream on various sectors. This will likely entail a more conservative approach to credit terms and heightened monitoring of payment practices, with more robust collections policies.

The situation in Germany, the EU’s largest economy, deserves particular attention. The recent court ruling that created a budget crisis is expected to exert a ‘fiscal drag’ on the economy. With economists slashing Germany’s growth forecast for next year, credit professionals should brace for potential impacts on German businesses and their ability to meet credit obligations.

In this evolving fiscal environment, trade credit must adopt a proactive and dynamic approach. It’s crucial to stay abreast of policy changes and economic forecasts and understand their implications on our customers’ industries and markets within the Eurozone. Regularly revisiting credit risk models, incorporating potential fiscal drags and reduced government spending into these models, and staying in close contact with clients to gauge their financial health will be key.

As the Eurozone moves into a more restrictive fiscal phase, credit professionals need to balance caution with opportunity. Identifying sectors less impacted by government spending cuts or those that might benefit from any potential ECB rate cuts will be essential. The current fiscal squeeze in the Eurozone is not just a challenge; it’s an opportunity for astute credit managers to demonstrate their expertise in navigating complex economic landscapes.

As we bid farewell to 2023, Baker Ing reflects on a vibrant year of growth, innovation, and industry impact. It’s been a period where we not only consolidated our expertise in credit and receivables management but also expanded our reach and influence across the industry.

A standout achievement this year has been the launch of these very Baker Ing Bulletins. These weekly insights are quickly becoming a cornerstone of industry intelligence, amassing nearly 2000 subscribers in just a few short months, already reading weekly. The popularity of these updates underscores our aim to provide thought leadership and act as your trusted advisors in the trade credit space.

Commitment to in-depth analysis and actionable insights was further evident in the release of a whole raft of new sector-specific research reports. Covering diverse areas like Healthcare, Automotive, FMCG, and Beauty & Perfumes, these reports offered strategic guidance, helping our clients navigate the complexities of their markets. These publications have been offered free in full for all, and we continued to improve access by offering online viewing of the reports with dynamic updates.

2023 also saw key additions to the Baker Ing family. The arrival of industry experts such as Bill Dunlop EAICD FCICM-MIEx EIICM EACCEE and John Kelly marked a significant expansion of our capabilities. Their expertise in international credit and order-to-cash processes has greatly enriched our service offerings and client interactions, enhancing our reputation as a global leader in our field.

Another highlight this year was our active participation in pivotal events like the Credit Expo Belgium, AICDP – Association Of International Credit Directors and Professionals , Credit Matters XII with Callisto Grand, and the Irish Credit Team Awards with Declan Flood which showcased our commitment to industry engagement and professional development. Additionally, our hosted events and webinars, including the Baker Ing Credit Cruise in London, and the Situation Room in Krakow have been not just platforms for knowledge sharing but also celebrations of our vibrant professional community.

As we look towards 2024, Baker Ing is poised to continue our trajectory of impactful growth and innovation. We are committed to building on the successes of this year, furthering our mission of delivering exceptional services and fostering a community of well-informed and connected credit professionals.

We have a whole lot more planned!

2023 has been a remarkable year for Baker Ing. Our journey has been a testament to the dedication, excellence and leadership of our people, partners and clients. We look forward to the new year with renewed enthusiasm, ready to embrace new challenges, new opportunities, and to continue our journey of innovation and excellence in high-value and sensitive accounts receivable.

Merry Christmas.

As we close the chapter on this week’s credit tales, let’s pause to appreciate staying ahead in this dynamic arena is more than a skill; it’s an art. Keep honing your analytical acumen and strategic thinking – Global Outlookis your indispensable guide through the intricate world of trade credit.

Until next time, stay informed, stay sharp, and may you enjoy this time of year for some peace and rest.