IMF Warnings Could Dampen Small Biz Global Ambitions

11. April 2018.








Geopolitical volatility continues to rattle major markets like the U.S. and the U.K., but small businesses (SMBs) remain resiliently focused on expansion across borders.

The National Federation of Independent Business (NFIB) released a survey in February finding record highs in SMB optimism as more entrepreneurs agreed that now would be a good time to grow globally. The NFIB said its January stats were among the most promising in the 45 years the company has produced the index.

American Express similarly found SMBs’ global ambitions remain strong in its 2017 American Express Grow Global Survey released last October. The research found a positive correlation between small business export activity and growth in sales, with more than three-quarters of SMBs saying they expect revenue from sales coming outside the U.S. to continue to increase.

And in the U.K., a report from CitySprint published this week found 1.3 million small- and medium-sized enterprises will seek to grow globally in the next year, amounting to nearly a quarter of small businesses in the market. According to CitySprint, the findings demonstrate small businesses’ determination to grow despite Brexit-related volatility: Europe remains a top target for U.K.-exporting SMBs, the report found, for 78 percent of firms surveyed, with North America and Asia coming in second and third place, respectively.

“While overall SME confidence has dropped since 2015, it is great to see so many SMEs, especially those outside of London, showing no fear in the face of international opportunity,” reflected CitySprint Group CEO Patrick Gallagher in a statement.

Global Threat

Despite small business optimism in the U.S. and the U.K. about prospects abroad, the International Monetary Fund (IMF) has warned that corporates large and small face the possibility of a darker future on the global economic stage.

“Yes, the current global picture is bright,” said IMF Managing Director Christine Lagarde in a speech made in Hong Kong on Wednesday (April 11), according to Bloomberg reports. “But we can see darker clouds looming.”

The global expansion of trade delivered a much-needed boost to jobs and developing markets, but rising protectionism could threaten current economic growth fueled by trade, rising investments and improved financial conditions — all of which, reports noted, have encouraged businesses to spend more.

“Increasing trade, removing barriers, encouraging this level playing field to which everybody should contribute has to be done collectively,” Lagarde told Bloomberg Television in an interview following the speech. “It can’t be by exceptional measures. It can’t be by unilateral threat.”

“The window of opportunity is open,” she added, highlighting the potential for countries to mitigate financial risks and promote “inclusive” growth. “Yet there is new urgency because uncertainties have significantly increased — from trade tensions, to rising financial and fiscal risks, to more uncertain geopolitics.”

Amid geopolitical risks like Brexit and the threat of a “trade war” between the U.S. and China, the Institute of International Finance (IIF) is also warning of another threat against the global economy: rising corporate debt.

According to reports in The Telegraph this week, the IIF found an increase of $21 trillion in global debts since 2016, hitting a record of $237 trillion.

“The global debt-to-GDP ratio has dipped 318 percent due to strong economic growth,” the publication wrote. “But if this growth spurt subsides, the debt burden could bring serious risks for the world economy.”

Reports cited the IMF’s Global Financial Stability Report, which warned of the particular risks of rising corporate debt on the global economy and the potential for more financing landing at riskier organizations.

“A period of high credit growth is more likely to be followed by a severe downturn or financial sector stress over the medium term if it is accompanied by an increase in the riskiness of credit allocation,” the report stated. “Thus, while policymakers should be alert to periods of rapid credit expansion or increasing riskiness of credit allocation, they should pay special attention when they take place together.”

The IMF issued recommendations to lenders to mitigate risks to avoid a potential economic downturn, rather than simply respond to one, as the financial services market did following the global financial crisis. That crisis, and the subsequent regulations on lenders, led to a reduction in small business lending, however. So, while small businesses remain optimistic today about international expansion, it is uncertain how easily SMBs will be able to access the financing they need to grow abroad amid rising concerns over debts and geopolitical volatility.

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