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Global Economy Recovering Weakly, Corporate Bankruptcies Soar in Europe and U.S. as Developing Countries Face Currency Crisis

Under the influence of weak economic recovery, sovereign debt risks and high inflation, the downside risks of the global economy have increased sharply.

01 Multinational corporate bankruptcies surge

200,000 European companies go bankrupt

A few days ago, according to the latest report released by the German credit agency “Creditreform” (Creditreform), more and more companies in Europe are filing for bankruptcy.

According to the report, nearly 140,000 companies will go bankrupt in 2022 in 14 Western European EU countries, as well as Norway, Switzerland and the United Kingdom. This figure represents an increase of 24.2% compared to the previous year. The largest increase in the number of bankrupt companies was in Austria, with an increase of 59.7% over the previous year. This is followed by the UK (55.9%), France (50%) and Belgium (41.7%).

In Eastern European EU countries, the number of corporate bankruptcies increased by 53.5% year-on-year to more than 60,000, and the total number of companies in Eastern and Western Europe added up to nearly 200,000.

Individual sectors were particularly hard hit: first retail and hospitality bankruptcies rose by 34.5%, followed by construction (24.7%), services (20%) and manufacturing (13.1%).

The Deutsche Presse Agency stated that in the two years of the epidemic, the number of bankrupt companies was correspondingly low, because many EU countries used subsidies to protect companies from bankruptcy during the epidemic. Now, this phase is over.

According to Gerhard Weinhoff, managing director of Credit Reform Austria, “the development of insolvency can also be described as a normal and necessary development”. Hankey predicts that the number of bankrupt companies will still increase in the coming months.

US bankruptcies surge

Based on reports from The Washington Post and Capitol Hill on May 23, a new report shows that since the beginning of this year, the number of US companies filing for bankruptcy has continued to increase, with more than 230 as of April.

U.S. media said that as the economic pressure continues to increase, if the U.S. debt default cannot be avoided, the bankruptcy situation of U.S. companies will definitely continue to deteriorate.

According to a report by S&P Global Market Intelligence, 236 large U.S. companies have filed for bankruptcy in the first four months of this year, more than double the number in 2022 and the highest for the same period since 2010.

The hardest hit are companies that sell direct-to-consumer, followed by industrial companies and then financial services firms. In recent weeks, several well-known large companies with hundreds or thousands of employees have even filed for bankruptcy protection.

Mark Zandi, chief economist at Moody’s Analytics, said that as U.S. interest rates increase and the government’s epidemic support plan for businesses has largely ended, the number of U.S. corporate bankruptcies is increasing. exacerbate the problem.”

Zandi also said that even a short-term failure to repay government debt would plunge the U.S. economy into recession, while a long-term default would be “catastrophic” and trigger a “tsunami of bankruptcy.”

02 Currency Change Risk

At the same time, under the double blow of high inflation and dollar appreciation, the currencies of most emerging economies tend to be hit hard.

India’s “demonetization order” has spurred a wave of shopping in large amounts of cash

A few days ago, according to a British Reuters report, after the Reserve Bank of India announced on May 19 that the current largest denomination banknote in circulation, 2,000 rupees (about 170 yuan), will be withdrawn from circulation at the end of September, India has become a big cash shopping frenzy.

According to the analysis, on the one hand, some people do not want to spend time queuing up at the bank to exchange their Rs 2,000 banknotes into small denomination banknotes;

In the past few days, many retailers have found that the number of customers shopping with 2,000 rupee cash is increasing, ranging from small fruit stands selling mangoes to large high-end stores selling luxury watches.

The owner of a mango stall said that since the announcement of the “demonstration order”, the stall can receive 8 to 10 large-value 2,000 rupee notes a day. The manager of a business selling Swiss radar watches in the center of Mumbai revealed that the number of 2,000 rupee cash received in the store has increased by 60 to 70% compared with the past few days.

Some merchants expressed delight at the increase in sales in stores as people were busy shopping with big cash. However, some merchants said that it is too troublesome to deposit cash in the bank before the end of September.

The previous “money abolition order” in 2016 is believed to be still fresh in the memory of many Indian and Chinese companies.

This “demonstration order” may cause difficulties for Indian small and medium-sized enterprises and self-employed individuals, and Indian and Chinese companies are also requested to make adequate preparations.

Argentina’s inflation rate exceeds 100%
2,000 banknotes officially launched to counter inflation

On May 22, local time, the Central Bank of Argentina announced that starting from that day, the country’s new version of banknotes with the largest denomination of 2,000 pesos will officially begin circulation.

The communiqué issued by the Central Bank of Argentina stated that the main purpose of using the new denomination banknotes is to deal with the inconvenience caused by the high inflation in the country to the circulation and use of Argentine peso cash.

According to the official economic data released by Argentina on May 12, in April this year, the country’s inflation rate reached 8.4%. The cumulative inflation rate over the past 12 months rose to 108.8%, the highest level since 1991. Since the beginning of this year, the Argentine currency, the peso, has depreciated by more than 23%.

Since prices are rising rapidly, saving money may mean paying a higher amount for the same goods in a few months or even weeks, and “stocking up” in advance can save a lot of money.

In addition to buying as much as possible for the immediate needs of the family at one time, many Argentines also stock up on some commodities that are not easy to expire, such as toilet paper and canned food. These items that can be stored for a long time are not only for personal use, but also can be resold to friends and colleagues after the price increase to earn the difference.

In addition, the rapid rise in prices caused some Argentines to run out of cash before the end of the month, and could not even afford daily necessities, so some people spontaneously organized “barter clubs”, such as exchanging idle items such as clothes and shoes for milk and bread and toothpaste, to tide you over if you’re running low on cash.

Bangladesh’s foreign exchange reserves are insufficient

Bangladesh’s foreign exchange reserves fell by $1.16 billion to $31.14 billion on March 9, 2023, after clearing more than $1 billion in import bills with trading partner countries on Tuesday, the latest data from the Bangladesh central bank showed.

Current reserves can cover nearly five months of imports in the country if monthly imports remain in the $6 billion range. However, if repayments on other loans are taken into account, the reserve coverage ratio will decline.

Bangladesh has slashed its monthly import spending to $5 billion in January, from more than $7 billion in September last year, according to data from the central bank.

The number of new letter of credit issuances fell to $4.9 billion in January, suggesting that foreign exchange payments will continue to decline as the letter of credit settlement period approaches in the coming months.

In view of the high risk of trade disputes and letters of credit in Bangladesh, and the lack of bank credit ratings, it is recommended that domestic trading companies carefully select trading partners and issuing banks, and purchase relevant foreign trade insurance.

The Economic and Commercial Counselor’s Office of the Chinese Embassy in Bangladesh has twice released the “Annual Statistical Table of Complaints against Commercial Banks in Bangladesh”, which contains the complaints against Bangladesh Commercial Banks in 2021. Please be sure to collect them as foreign trade personnel in the Bangladesh market. Remember Avoid issuing banks that are on the “blacklist”.

Turkish lira plunges more than 7%
Continue to set new record lows

On June 7 local time, the Turkish lira plummeted 7%, the biggest drop since the Turkish currency crisis in December 2021.

In the past two years, the lira has fallen by more than 60% against the US dollar. After Wednesday’s slump, the dollar was worth about 23 lira.

The main reason for the plunge is that Türkiye’s monetary policy is undergoing a difficult turn. Finance Minister Mehmet Simsek, who just took office earlier this month, said that Turkey will reverse its years of selling foreign exchange reserves to support the lira exchange rate, and strive to establish fiscal discipline and curb inflation.

Currency depreciation is further hurting Turkey’s sluggish economy, but if the austerity policy is indeed sustained, it may curb the country’s high inflation.

Turkey’s inflation rate was 39.59 percent in the latest May, government data showed. In October last year, Turkey’s inflation soared to a high of 85.51%.

The depreciation of the currency makes Turkish imports such as medicines, crude oil, etc. more expensive. It could also push businesses and households that borrow in dollars into bankruptcy.

Trade risk reminder: Foreign traders who have relevant business dealings with the above countries should pay attention to trade risk control (especially receipt and payment), and beware of the risk of abandonment and non-payment at the port of destination.

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