Global Working Capital Requirements Surge to Record Levels Since 2008
The renowned economists at Allianz Trade, a leader in trade receivables insurance, have released a comprehensive report detailing the current trends in Working Capital Requirements (WCR) and Accounts Receivable Values (AV). The report highlights an anticipated rise in global WCR for 2024, reaching the highest point since the 2008 financial crisis, primarily due to elongating receivables maturities.
According to the report, European companies have effectively operated like financial institutions, extending approximately €11 billion in trade credit. Meanwhile, their counterparts in the United States have channeled available funds towards rewarding shareholders. Should the so-called “Independence Day” tariffs be fully enacted, both European and American firms would require an additional three days of financing, translating to €8.5 billion for Europe and $15.5 billion for the US.
Divergent Corporate Strategies in Europe and North America
Allianz Trade’s updated report also reveals a growing divergence between corporate strategies in North America and Europe. It underscores how businesses are navigating economic uncertainties, tepid demand, and evolving trade policies. Globally, WCR increased by an average of two days, reaching 78 days in 2024, the highest since the financial meltdown of 2008. Western Europe saw a notable increase of four days, marking the third consecutive annual rise, while the Asia-Pacific region experienced a moderate two-day uptick. Conversely, the US witnessed a reduction in WCR due to a strategic destocking approach.
Potential Pitfalls in the Prolonged Trade Conflict
The report emphasizes that global economic growth will remain subdued, excluding recession periods, amidst pervasive uncertainties and enduring trade conflicts. The year 2025 could see weak demand further constraining company revenues. US companies’ lower inventory levels and European firms’ significant credit risks may heighten their vulnerability to increased financing needs.
Ana Boata, Head of Macroeconomic Research at Allianz Trade, underscores the potential for significant WCR increases in unfavorable scenarios. “Should US tariffs rise as announced on Independence Day, GDP growth might decline by a full percentage point, exacerbating WCR. In such cases, European and American firms would require an additional €8.5 billion and $15.5 billion in financing, respectively, equating to three days’ worth of turnover for both regions. Moreover, a one percentage point interest rate hike, spurred by fiscal instability and inflationary supply shocks, could drive WCR up by €14 billion in Europe and $26 billion in the US.”
Sector-specific Trends and Inventory Management
Seven sectors across North America, Western Europe, and the Asia-Pacific region experienced WCR increases, largely due to weak demand: transportation equipment, chemicals, energy, retail, machinery equipment, metals, and software/IT services. In contrast, WCR reductions were more sporadic: while most US sectors improved, only specific European sectors such as paper, B2C services, and hospitality saw declines.
Ano Kuhanathan, Head of Corporate Research at Allianz Trade, highlights that by the end of 2024, 35% of global firms had WCR exceeding 90 days, with preliminary data suggesting a slightly above-average quarterly increase. “Nevertheless, US commercial inventories have decreased, despite record imports, indicating selective pre-stocking rather than widespread accumulation. This inventory reduction has bolstered earnings and freed up capital, positioning share buybacks to surpass $1 trillion by 2025, with $234 billion already realized in the first quarter. US firms, anticipating limited growth, are reallocating capital from warehouses to wallets and from factories to shareholders.”
Longer Payment Terms Drive Up European WCR
The report also notes that in 2024, Global Payment Terms (PDs) rose by over two days, outpacing the general WCR increase and becoming a primary factor in the upward pressure on WCR. Maxime Lemerle, Principal Analyst in Insolvency Research at Allianz Trade, observes that with heightened inventories and reduced SCRs, European companies are effectively financing their trading partners by lengthening payment durations and absorbing associated risks. “Between the last quarter of 2024 and the first quarter of 2025, firms mobilized an additional €11 billion. This sum closely mirrors the monthly new lending by banks since the year’s start.”
