Irish exporters with exposure to the air transport, construction and car sectors in the US should exercise greater vigilance against creditor defaults due the increased risk of business failures in that market, a leading credit risk expert has warned.
Philippe Brossard, group economist with credit risk insurer Euler Hermes, predicted a 4 per increase in insolvencies among Irish companies trading with the US, mainly due to slower economic growth in the US and higher credit defaults. A division of the Allianz insurance empire, Euler Hermes underwrites €600 billion in credit guarantees for international clients and claims 36 per cent of the global credit risk insurance market.
Mr Brossard said the increased risk of insolvencies among Irish exporters was linked to its reliance on the US economy, Ireland's biggest export market.
"We have a policy of detecting fragile counterparties or obviously dangerous risk in terms of payments. We have our own economic forecast based on the knowledge of our risk people across the globe," he said ahead of a seminar today in Dublin.
"Our scenario for this year is that we are going through a world economic slowdown. World gross domestic product (GDP) growth last year was 4 per cent and we forecast a slowdown to 3.3 per cent this year.
"This is mainly because the US will lose approximately 1 per cent, with GDP growth down to 2 per cent, with the euro zone doing the same. Therefore, insolvencies, which declined at world level last year, are likely to bounce back a bit this year."
Citing an weighted index of Ireland's export partners, he said that the increase in the number of insolvencies amongst US trade partners would be the main factor behind the overall increase in export credit risk form firms.
"Last year, business insolvencies for Irish trade partners were down 11 per cent. This year, we expect an increase of about 4 per cent. One of the main reasons for this is the US," he said.
"Last year US insolvencies were down 50 per cent, mainly due to a change in regulation on insolvencies. This year we expect a bounce back of the same amount as people get used to the new regulation and also as the economy there slows down. Trading abroad will be riskier than it was last year."
