In my last years article “GLOBAL CRISIS ON THE HORIZON” the imminent dangers for the world economy were highlighted as a result of seemingly unlimited money printing processes initiated by the Central Banks worldwide. The results of this fiscal policy in combination with a zero-interest policy is felt worldwide now.
Interestingly the real economic meltdown does not co-relate with the performance of share indices in the International Stock Exchanges Their share values show an appreciating increment of share values. However, these bull market indices do not reflect at all the real economic performances of countries. Why the economic meltdown does not reflect its downfall in the stock exchanges hype is the question?
The excessive printing of money had resulted in a decoupling of the real economy with everything which is traded in the Stock Exchanges. The sheer unlimited printing of money has reached dimensions which experts even did not forecast in their worst predictions. Zero and negative interest scenarios created by the central banks led to more and more borrowing in inter-banking and subsequently to companies who are or were already on the brink of bankruptcy. The core banking business which is based on granting loans and generating interest out of it, had been virtually hollowed out with the existing zero-interest policy. And as a result, the Zombification of the real economy happened at the same time. Due to the zero interest rates policies of the major central banks, enterprises which are virtually bust are being enabled to carry on their businesses due to capital provisions freely available on little more than zero interest rates
Banks nowadays had to revert back to their traditionally high-risk business engaging in hedge fund deals and other high risk investment activities, which the Banking supervisory authorities after the 2008 crash virtually prohibited but have now become daily reality once again . Additionally, the low interest scenario allows companies which are virtually bust or insolvent to temporarily extent their survival on credit lines which are willingly provided by commercial banks as their own last survival scenario to generate income for these lendings to enterprises. Official European Central Bank statistics as at today confirm, that approximately 2 Million companies in the EU zone are practically insolvent and alone in Germany around 600.000 Companies are facing bankruptcy in very near future. The word Zombification of enterprises has become the common nom for this new phenomenon. It seems, that the traditional and proven mechanisms of the Market economy had been dismantled by way of severe government interventions worldwide. For Example, a new German Law in place now for almost 6 months permits enterprises a grace period by allowing them to delay insolvency declaration, which was prior to these dates absolute mandatory. The unavoidable side effect is, that practically already bust companies continue doing business unabated. Related business partners being unaware of the economic difficulties of their partner companies may run itself into difficulties thereafter, when due payments out of services rendered to their partners running dry.
The general caution notices for Sri Lankan Exporters to secure their outstanding’s as a result of their deliveries and services to European companies should be focused in line of the increased drastic economic developments in the EU zone.
If alone in Germany 600.000 Companies are more or less insolvent, and in line of this a significant number of partner companies in Germany and abroad are unaware of their economic situation, greatest caution should be taken to secure outstanding’s from deliveries and services provided. The Sri Lanka Export Development Authority should take great attention on these unavoidable developments in the EU Zone and prevent Sri Lanka Exporters to fall in trouble.