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Coface business sector update: Positive changes in North America and Asia Print E-mail
Thursday, 23 January 2014

Positive changes in North America and Asia whilst risks stabilise in Europe. Focus on the European textile sector.

Risks have been upgraded to ‘moderate’ in the retail and automobile industries in North America and the services industry in emerging Asia whereas no sectors in Western Europe are as yet classified as ‘moderate’ risks.

In Asia and North America, dynamic private demand continues to improve sector risks. According to the synthetic risk indicator developed by Coface1 economists and enhanced by its underwriters' experience of companies’ payment behaviour, the improvement in credit risk is focused on these two regions. In contrast, we are maintaining our ratings for all sectors in Western Europe, because, although the overall trend is towards stabilisation, this region remains difficult and highly uncertain.

•   The automotive industry in North America has seen new car sales return to pre-crisis levels, boosted by renewal requirements. In parallel, automakers' cash flows have increased 19% over the last year. Conversely, in Western Europe the sector is still very high risk, particularly for players at either end of the supply chain: the small component manufacturers as well as the distributors and the repairers. The UK however, shows strength, combining specialisation in the premium segment, strong export presence and technological innovation.  

•   In the Canadian and US retail sector, sales have risen 3.9% for online and traditional retailers over the last year. Turnover, up 5% at end October 2013, also reflects this renewed buoyancy. Within Western Europe, Germany is also seeing sales growth, thanks to consumption stimulated by a fall in unemployment and wage increases.

•    In emerging Asia, Coface considers the services industry’s credit risk to be ‘moderate’. Turnover and profitability have increased noticeably on the back of corporate services, notably IT and engineering. Across the region, the emergence of a Chinese middle class is boosting tourism in Asian countries, a trend that will benefit from rising Chinese consumer income in the years ahead.

In Europe, services are affected by a contraction in investment by businesses, individuals and the local authorities, with profitability falling 2% year-on-year. In Germany, however, services to businesses remain dynamic.

European textiles: innovation is key to success



Weakened by major upheavals caused by globalisation and by demand shocks from a spate of financial crises, the textile and clothing industry had a ‘medium’ credit risk in the three regions under review. In Europe, the textile industry is relatively robust, but sales in the clothing sector are suffering due to dwindling consumption. The French situation confirms the textile sector’s newfound energy, with the number of insolvencies almost halved since 2009, despite an increase for French companies as a whole. At end October 2013, of the 62,431 insolvencies recorded by Coface in a year, only 83 were in the textile sector.

The European textiles sector remains competitive despite low-cost products from emerging countries, but the real key to success lies in innovation. The struggle to survive has forced many companies to invest in technical textiles, generally in niche markets. The Scandinavian countries were the first to take the innovation leap by restructuring their textile industry. Sweden, for example, traditionally invests more than the rest of Europe in R&D, with a spend equivalent to 3.4% of GDP compared with 2.25% in France and around 1.5% in Spain and Italy. It also trains engineers to meet the industry's real needs.

The innovation drive is certainly paying off. But the question remains regarding the long-term stability of a sector which is faced with raw material price fluctuation, the need to fund innovation and the threat of competition from emerging countries that are moving upmarket.

(Source - Coface Press Release)
  

 

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