Sace confirms for February the growth, albeit limited, of Italian exports compared to the previous month (+0,3%), in line with the quarterly figure (+0,2% in the last quarter compared to September-November). Compared to the same month of the previous year, some markets show weakness (UK, Russia and Opec countries), others, however, are growing (China and Poland). In January and February, good dynamics were observed in the demand for motor vehicles in the Netherlands and France, while it remains negative in the UK (+79%, +8,6% and -16,5% respectively). The export of pharmaceutical items to both London (-50,9%) and Paris (-36%) was down sharply, while sales to Amsterdam more than doubled. Electronic devices also fell in all three markets (France -16,7%, UK -34,4%, Netherlands -36,2%). The decline is widespread in almost all Made in Italy sectors towards the United Kingdom, which is discounting the effects of Brexit.
At the level of the main industrial groupings, the contraction is reduced for cross-border sales of intermediate goods (-1,5% compared to the first two months of 2020), an improvement compared to the previous month (-3,4%). Even consumer goods, although still negative (-6,4%) performed better than the average. The decline in non-durable goods (-8,0%) was partly offset by the recovery in durable goods (+2,3%). Capital goods remain in negative territory (-8,8%), which continue to discount the occasional shipbuilding movements to the US at the beginning of 2020 (-31,2% the figure for other means of transport). Electrical appliances are among the fastest growing sectors in the first two months of the year (+3,6%), thanks to strong Chinese (+92,7%), English (+13,0%) and German ( +8,7%); positive notes also come from sales of metals and metal products (+3,5%), growing in China (+42%), Germany (+22,4%) and France (+5,9%). Textile and clothing exports, on the other hand, are declining in almost all geographies, with particularly negative performances in London (-50,3%), New Delhi (-38,8%) and Washington (-27,4%): Beijing, on the contrary, records a considerable increase in demand (+85,7%) showing a glimmer of recovery.
In this scenario, Euler Hermes underlines how the crisis has pushed up the concentration of cash among European non-financial corporations: overall, firms now hold cash reserves equivalent to three months of turnover, over half a month more than pre-crisis averages, and it is the richest sectors and firms that have gotten even richer. After rising sharply in 2020 in most European countries, non-financial corporation (NFC) cash has stabilized at elevated levels in recent months. In France, total NFC deposits are equivalent to more than four months of turnover in cash flow, almost a month higher than pre-crisis levels, while in the UK they are equivalent to almost 3,2 months, around 18 days above the pre-crisis levels. Given continued light lockdowns in major European countries in recent months, cash positions have increased upside risks to investments in 2021.
Looking at the evolution of total cash positions in relative terms within countries, sectors such as industry (mainly in Italy, Spain and to some extent in the UK) and consumer goods (mainly in France and Germany) represent most of the cash hoarding of listed companies. However, the increase was also uneven within each sector to the benefit of already wealthier firms. In major European countries, the top 10 cash increases in terms of liquidity have consistently been higher than the average increase in relative terms, implying higher liquidity concentration: looking at the financial data available at the beginning of April, companies with the 10 largest cash increases in 2020 recorded a growth of 56% (compared to +45% of the EU average) and have amassed nearly half of the total cash of publicly traded companies. Furthermore, cash from large enterprises accounted for more than 70% of the total increase in NFC deposits in Germany at the end of 2020, standing at 54% in France and around 30% in Italy, Spain and the United Kingdom. Faced with this, governments have already started to implement phasing out strategies from large fiscal support measures.
It is likely that firms will use about 50% of excess liquidity to finance increased working capital requirements and offset sharp increase in input prices compared to low pricing power. Rising input prices due to current supply chain disruptions are expected to drag NFC margins down -4,5pp to -7,0pp in the first half of this year. Given their reliance on imports, the European Commission estimates that firms in Germany, the UK and France would face the largest loss in gross operating profit: to this end, increased working capital requirements in line with funding of inventories and longer payment delays will require additional funding in 2021. However, it is likely that the sectors with the highest cash positions will initiate both defensive (increase of production capacities, modernization of existing production facilities) and offensive investment strategies, acquiring competitors that may be in a weaker financial position. Strong average M&A deals by Western European firms have been observed since the beginning of the year, both domestically and cross-border, with the ICT sector posting the strongest increase.
