87% of UK businesses confident about export outlook in 2024
From the Covid-19 pandemic to the invasion of Ukraine to revived tensions in the Middle East, crisis after crisis has created a challenging and uncertain environment for exporters. Could 2024 bring some light at the end of the tunnel for companies? To find out, Allianz Trade surveyed over 3,000 exporters from China, France, Germany, Italy, Poland, Spain, the UK and the US for the third edition of its Global Survey.
UK businesses favour Europe for supply chain relocation
Almost 9 in 10 (87%) UK companies expect turnover generated through exports to increase by more than +2% in 2024, up from 83% this time last year when the final performance stood at +3.3%. UK businesses expect slightly more pronounced growth in export-related revenue, with 84% of those surveyed predicting export turnover will grow by up to 10% in 2024, compared to 79% last year. The proportion of businesses who believe their revenues from exports will decrease this year has shrunk noticeably at only 2%, down from 14% last year which confirms firms’ expectations that global trade will bottom-out from last year’s recession.
While exporters remain positive on revenue growth, it will not come without challenges. As for the top three threats to export activity UK companies identified in 2024, those included (geo)political risk and protectionism (74%), shortages of inputs and labor (49%) and financing and non-payment risk (39%). The cost of energy is a higher concern for UK businesses compared to peers, along with German and Chinese exporters.
In an environment where cost inflation continues to be an issue, albeit to a lower extent compared to previous years, it’s not surprising that UK businesses plan to hike their export prices, the research revealed. Almost one quarter (24%) of UK respondents said they would increase prices ‘significantly’ compared to 2023, with 56% of British businesses saying they would hike prices ‘modestly’. Only 1% of UK companies said they would decrease their prices in 2024.
While 55% of UK companies have their top offshore production sites / suppliers in Western and Eastern Europe, this is less than their European peers (65%) as UK firms are more exposed to North America compared to peers (35% against 17%). When it comes to China, UK companies are more exposed to critical dependencies from China compared to European peers, mainly for computer, telecom and electronics (74% of total critical imports from China), textile (11%), metals (4%) and chemicals (4%). The critical import dependency on China has increased since 2017 (+8pp to close to 29% in 2022).
However, rising (geo)political and protectionism concerns are pushing UK companies to substantially dial back their offshore supply-chain reliance, the research shows. 61% of UK companies exposed to long supply chains are considering relocating parts of it due to increasing geopolitical risks and 50% of them expect reshoring to continue at a similar rate over the next two years, while 29% expect reshoring to accelerate. The majority of offshore production / suppliers’ relocation intentions are in Western Europe.
Why is more relocation not taking place? The top 3 hurdles identified by the research are high costs associated with trade (e.g. due to the lack of free-trade agreements), operations and investment; labour-related concerns (availability, costs and regulation) and the quality and availability of suppliers, with the latter two more important hurdles for UK exporters compared to the overall sample.
For the first time in Allianz Trade’s Global Survey series, businesses were asked about the impact of AI. A majority (55%) of UK businesses said the technology would significantly increase their company’s productivity. Currently, UK businesses use AI most to monitor supply chains (29%).
Optimism déjà vu: are corporates underestimating the risks ahead once again?
In the 2023 edition of our Global Survey, 70% of all companies surveyed globally said they expected business turnover generated through exports to increase. But the year ended with a trade recession, with demand slowing more than expected. 2024 is expected to bring about the end of the recession but are companies being overly optimistic again? In the latest edition of our survey, 82% of corporates said they expect business turnover generated through exports to increase in 2024, especially in consumer-related sectors such as retail, household equipment and computers & telecom. In fact, nearly 40% of corporates expect a significant increase of more than +5% in 2024 (+18 pps vs 2023).
“After more than a year of recession, exporters are now looking forward to a rebound in the second half of 2024 as the restocking of manufactured goods is gaining traction, along with global demand. This will also boost prices and fuel reflation: Globally, 8 corporates out of 10 expect export prices to rise in 2024, thus supporting their export turnover. Our forecasts are more conservative: We expect global trade to rise by +2.8% in value terms in 2024 after a contraction of -2.9% in 2023. That’s significantly below the long-term average of +5%, reflecting the risk of disruptions in global shipping like the Red Sea crisis, as well as rising protectionism”, explains Françoise Huang, senior economist for APAC and Global Trade at Allianz Trade.
To support exports, corporates have diverging priorities. French and US exporters are particularly in favour of new product development, while German, Spanish and Chinese exporters want to target new markets. UK exporters want to prioritize investment at home in 2024.
Non-payment risk is still top of mind for exporters
Though optimistic, exporters remain well aware of the risks weighing on their international development. Globally, corporates are mainly concerned by geopolitical risks, shortages of inputs / labour and financing matters. But non-payment risk remains top of mind.
“We found that globally, close to 70% of corporates are paid between 30 and 70 days with the UK, France and the US being slightly more numerous than peers. In a context of lower growth, trade disruptions and geopolitical uncertainty, 42% of corporates are now expecting the length of export payment terms to increase in the next six to twelve months. Longer payment terms mean stronger pressure on cashflow, and the situation might even worsen. Moreover, 40% of respondents are expecting non-payment risk to rise in 2024. This is in line with our forecast for global business insolvencies to rise by +9% this year”, adds Aylin Somersan Coqui, CEO of Allianz Trade.
53% of companies are considering relocating supply chains due to increasing geopolitical concerns… but will they walk the talk?
When asked about the top three risks that pose the greatest threat to their offshore production sites and supply chains, companies most often chose issues related to the structure of supply chains, such as complexity, concentration or competition. Risks related to geopolitics, politics and protectionism come next, followed by ESG-related risks.
“The political landscape, with elections taking place in economies that account for close to 60% of global GDP, is contributing to rising geopolitical risks and increasing uncertainties. In this context, companies are in wait-and-see mode, mostly focused on upcoming national elections. That said, supply-chain exposure can change the risk perception: by and large, companies with long supply chains and more than half of production located abroad are most worried about an intensification of the US-China trade war”, states Ano Kuhanathan, head of corporate research at Allianz Trade.
In this context, to mitigate supply-chain disruptions, companies are primarily improving their supply chain risk management, increasing ESG due diligence on suppliers and buying supply chain insurance. But while 53% of respondents say they are considering relocating parts of their supply chain due to increasing geopolitical risks, fewer are actually taking concrete steps in this direction: relocating production sites does not rank among the top three out of 10 actions proposed to mitigate supply-chain disruption (except for Spanish and German exporters).
“Diversification has become the main strategy to build supply-chain resilience. But this brings its own risks, increasing complexity and potential choke points, and isn’t a perfect solution. For example, 48% of US exporters that have production sites or suppliers in China would consider countries in Asia-Pacific or Latin America to diversify their supply chains. However, they would still be exposed to China indirectly, given its critical role as a global supplier in the manufacturing sector”, says Ana Boata, global head of economic research at Allianz Trade.
Sustainability gains traction but the race is not over yet
Supply chains are at the core of sustainability and companies are increasingly taking note. 72% of our survey respondents that have supply-chain responsibilities also have ESG responsibilities. Yet progress on climate targets remains slow. Only 27% of respondents strongly believe that their companies have implemented ESG actions that have significant consequences on their businesses, ranging from shifting their logistic choices to more sustainable ways (26%) and developing more sustainable products (25%) to improving the climate resilience of their supply chains (23%).
“76% of respondents state that their company has a clear plan to transition out fossil fuel, regardless of the prices’ fluctuation. This a big step forward: companies are now focusing on structural initiatives rather than on short-term actions. But there is still a long way to go: nearly 2 out of 3 companies plan to reduce emissions by only 1 to 5% in the next 12 months, which falls short of the effort needed to reach the net-zero target by 2050”, ends Aylin Somersan Coqui.
