The risk of unpaid invoices is highest in the construction, textile and metal sectors. This is according to the 'Sector Risk Rating' of credit insurer Allianz Trade. A total of 18 sectors were examined in 70 countries.
The increase in payment risk is occurring in virtually all sectors. This is a logical consequence of challenging economic conditions and declining growth. According to Allianz Trade, global GDP growth falls to +2.5% this year, the lowest level since 2019. Johan Geeroms, Director Risk Underwriting Benelux at Allianz Trade: "Looking at advanced economies, we expect limited growth for 2024 as well. With months of recession here and there but the chance of a deep overall recession we consider small."
Risk by sector (by country)
Allianz Trade used four criteria for its Sector Risk Rating: product demand, profitability, liquidity and operating environment. "Globally, we see payment risks increasing across a broad front. Although we do see differences in regions. Asia has seen the least relative increase in risk, while South American countries have emerged as the riskiest. And in Europe the probability of default is again higher than in the US. Looking by sector, we see that the pharmaceutical sector and software and IT services receive the best ratings, with construction, textiles and metals coming out worst."
Construction
That outcome does not surprise Geeroms at all. These are sectors that are very sensitive to high energy prices. If you look at the construction industry, the increased interest rates also hit this sector particularly hard. Especially in Europe, construction companies are struggling. Also consider the increased wages and raw material costs compared to pre-covid. On top of that also real estate prices that are falling." The Allianz report also cites regulations (including environmental) as a major obstacle.
Metal
Geeroms on the metals industry: "In terms of energy, it's the same story. The metal industry is a very energy-intensive sector and has benefited from cheap Russian gas for years. The European metals industry was already sounding the alarm last year. Although energy prices have fallen, they are still very high on average. Especially the base metal industry is struggling. Think zinc and aluminum production."
Danger domino effect
Geeroms warns SMEs in particular about the danger of non-payment: "Companies need to be extra alert. Just one large unpaid invoice can cause SMEs problems. Liquidity problems can also arise as payment of outstanding bills is increasingly delayed. One company thus ignites another. A domino effect occurs."
