New research by the International Chamber of Commerce and International Monetary Fund has revealed a pessimistic outlook for demand for trade finance products like letters of credit in 2012, with the euro crisis largely to blame.
Based on input from 337 financial institutions responding to a joint ICC-IMF survey
, the findings show emerging Asia has the strongest outlook globally while the euro area is the weakest. Results of the survey were released Thursday by the U.S. Council for International Business (USCIB), ICC’s American affiliate.
Around 60 percent of respondents indicated that the demand for trade in Asia will show improvement in 2012, while close to 50 percent of respondents predicted a further deterioration for the euro area, USCIB said.
“These results illustrate how far, and how fast, the ripples from the euro crisis are spreading,” said Michael F. Quinn, managing director with JP Morgan Global Trade and chairman of USCIB's Banking Committee. “The withdrawal of European banks from global trade finance has had a major impact on the ability of companies to arrange for trade finance in many markets, and we expect this to continue into the future.”
Factors contributing to the negative outlook for 2012 were primarily financial constraints that reduce the availability of trade finance, the organizations said.
“This was particularly acute for large banks and those with business in developing countries,” they added. “Some 90 percent of respondents indicated that ‘less credit or liquidity available at counterparty banks’ would affect their trade finance activities either to a ‘large extent’ or to ‘some extent.’ This share is substantially higher than the just over 50 percent that noted the same during the 2008-2009 financial crisis.”
The financial constraints appeared to reflect the large share of trade finance coming from euro-area banks. The survey showed that recent European bank deleveraging has led to tighter lending guidelines and reduced availability of credit and liquidity. In addition, U.S. dollar funding for non-U.S. financial institutions may exacerbate the situation, since trade remained largely denominated in U.S. dollars. — Eric Johnson