CM May 2020

Japan’s VAT rise squeezes
the economy
YOU couldn’t make it up. It appears, not
unsurprisingly, that Japan’s economy
contracted by 6.3 percent in the last quarter
of 2019 following a rise in the country’s rate
of VAT. Simple maths indicates that a rise in
VAT is going to make some consumers think
twice about what they buy, so consumer
spending fell by 11.5 percent.
But what makes the rise in VAT hard to
fathom is that the government apparently
had no real need for the extra revenue yet
raised VAT on many consumer goods from
eight to ten percent anyway. The Japanese
government clearly didn’t learn from its past
‘errors’ because the same thing happened
in 2014 which was followed by a similar fall
as did an increase back in 1997. The rise
is even more remarkable as the Japanese
government has a stated policy of boosting
private spending and increasing inflation
from its current 0.8 percent to a two percent
target.
And here’s the message for exporters –
any rise in VAT is bound to make it harder
to sell goods to consumers who cannot
recover the tax. So, if your products are
aimed squarely at consumers you may want
to either move your attention to different
markets, make your products less expensive
or scale back production.
As to what the Japanese government does
next to support the economy in the face of
the threat of coronavirus, that’s anyone’s
guess.
Atradius maps the risks of trade
THEY say that a picture is worth a
thousand words and so exporters
wishing to see where global tradingrelated
risks are greatest would be well
advised to spend some time looking at
Atradius’ Country Risk Map. Granted it
uses data from Q4 2019, which given the
current situation may be a touch out of
date, but it’s interesting for if nothing
else, it generally reinforces what we
know to be the most ‘at risk’ countries.
The US, Canada and most of northern
Europe is low risk – as is Greenland.
Lumped together as moderate-low
risk are Spain, Portugal and Italy with
many of the former communist states,
Russia, India, China and Saudi Arabia.
South Africa, Turkey and Brazil are
considered a moderate risk while those
countries to be handled with extreme
caution include Sudan, the Democratic
Republic of the Congo and Mali. No
prizes for how North Korea, Iran, Iraq and
Syria are rated.
The map isn’t static and this time
around Bulgaria, Dominican Republic,
Jamaica and Portugal rose in Atradius’
estimation while Angola, Argentina,
Chile and Lebanon sank.
As to how the risk map is compiled,
the company says it uses political
risks, the likelihood of conflict, risk of
confiscation, currency controls, a state’s
willingness to pay its bills and the ability
of businesses to pay their international
bills. So, just as a hiker shouldn’t leave
home without a good OS map, exporters
shouldn’t do business with overseas
partners without consulting this map.
WATCH YOUR
EXCHANGE RATES
CORONAVIRUS has exacerbated
Sterling’s fall through the floor against
other key currencies. The fall has started
as a result of the government’s Brexit
negotiations (remember that?). By 19
March, Sterling had fallen to €1.05 at one
point before ‘recovering’ to €1.09 by the
day’s end. And against the dollar, it dropped
to $1.14 before rising to nearly $1.15. Now
compare those rates to 10 days earlier
where one pound would have bought
€1.15 and $1.30. What will happen next is
anyone’s guess, but the swing in exchange
rates may either be a blessing or a curse
depending on which side of the fence you
sit.
But there is a solution. If you’ve not
thought about it already, you should
employ a currency trader to fix your rates.
Whether that’s through the use of forward
contracts, stop loss orders, or options, a
trader can help provide comfort against
adverse exchange rates. Conversely, it
might even offer an opportunity to make
money. Either way, exporters must protect
their currency exposure.
CV CREATES A HEALTHY
OUTLOOK FOR SOME
IT seems crass to talk about business
opportunities when it comes to
Coronavirus, but it should be entirely clear
to any bystander that healthcare spending
is surging across the world. And this
makes the sector a target for any business
able to offer supplies, staff, equipment and
buildings.
The UK has said that the NHS will get
whatever it needs to handle the pandemic
and governments around the world are
doing much the same. The EU Commission
announced in February a new €232 million
aid package to boost global preparedness,
prevention and containment of the virus.
And the US has an $8.3bn package that
will be spent on research and development
of vaccines, research for treatments,
telehealth services and state-based public
health services.
So, while on the one hand it seems unfair
to exploit the present emergency it should
be remembered that UK firms could well
hold the key to helping those in need.
CURRENCY UK
EXCHANGE RATES VISIT CURRENCYUK.CO.UK
OR CALL 020 7738 0777
Currency UK is authorised and regulated
by the Financial Conduct Authority (FCA).
HIGH LOW TREND
GBP/EUR 1.15271 1.06078 Up
GBP/USD
1.26416 1.14767 Up
GBP/CHF
GBP/AUD
1.21378 1.12388 Up
2.05564 1.95173 Down
GBP/CAD 1.777704 1.66659 Up
GBP/JPY
135.46293 125.99350 Up
Advancing the credit profession / www.cicm.com / May 2020 / PAGE 33
This data was taken on 20th April and refers to the month
previous to/leading up to 19th April 2020.