Compliance, Climate Economics And Global Inflation: Data And Business Trends For 2022

Since the turn of the decade, business has been blighted by deep, enduring disruption. 2022 is likely to be awash with yet more unpredictability, as the world continues to navigate a post-pandemic landscape. If the past two years have taught us anything, it’s to be prepared for everything. 

To this end, data can be a powerful ally for businesses, with its ability to make sense of the senseless and help you predict the unpredictable. Below, we’ll explore some of the key data and business trends that will shape our lives and livelihoods over the coming year and beyond. 

1. Business failures on the rise

Since the start of the pandemic, governments around the world have implemented loan guarantees, tax payment moratoria, loan maturity extensions, relaxed credit terms and furlough schemes to mitigate its effect on businesses. This was essential to boost liquidity and save jobs. But two years on, many governments are now unwinding emergency relief programmes.

The emergence of new COVID-19 variants, such as Omicron, remain a near-term threat to prompt payment performance. So, although the global average of the D&B PAYDEX® score, a proxy for global trade payment behaviour, has recently improved, this trend could reverse if governments withdraw their fiscal and policy support prematurely, increasing the probability of business failures. 

For G7 countries, the D&B® Failure Score, which predicts the likelihood that a business will, in the next 12 months, seek legal relief from its creditors or cease business operations without paying all its creditors in full, has deteriorated in recent months. The D&B Global Business Ranking, which predicts the likelihood that a company will become inoperable, inactive or dormant, also shows a worsening trend. The combined effects of the removal of support, higher financing costs with central bank tightening, and heightened uncertainty from new variants mean business failure rates are, unfortunately, likely to rise in 2022.

2. Compliance is a growing concern for businesses

Dun & Bradstreet data shows the number of business enquiries regarding compliance and third-party risk areas have been consistently going up since 2019 – increasing by nearly 50% between January 2019 and November 2021 – due to the volatile business environment during COVID-19. 

In 2022, with regulatory deadlines and rules of operation constantly being updated, interest in solutions that will help businesses stay current with the regulatory environment will rise, as authorities around the world seek to roll back exceptions and regulatory normalisation follows. 

Perhaps more interestingly, the data also shows sudden spikes around key political events. Between November 2020 and January 2021, we witnessed a sharp rise (126% YOY) in cross-border compliance-related enquiries. This happened in the wake of two important political events: the US presidential elections and the Brexit agreement coming into effect. 

In the year ahead, businesses need to remain vigilant around political events which have the potential to change the rules of the game. Closely contested elections, referendums, climate action, human rights issues, the democratisation of data privacy, individually or collectively, will require businesses to take action to remain compliant.

3. Companies strengthen global value chain resilience

The pandemic has shown that just-in-time supply chains can leave companies exposed to large and non-temporary shocks. In the expected wake of ongoing disruption, businesses will have to continue to optimise their supply chains to strike a delicate balance between resilience, agility and efficiency. 

In response, nearshoring has emerged as a solution for many firms. But there isn’t a one-size-fits-all strategy when it comes to supporting supply chains – and D&B data suggests companies are looking at a diverse set of options, with an increasing reliance on granular information. These types of enquiries on company data are currently eight times higher than pre-pandemic levels, and we expect the focus on value chain resilience to become a more important factor to production for firms in 2022 and beyond.

4. Diversified factors will keep inflation elevated

Given the fluidity of the global economic environment, faster rotation in demand and supply factors that drive inflation are likely to continue in the near term. Demand for services is yet to peak amid the start-stop scenario caused by COVID-19 – and as such, services inflation could pick up further following the re-opening of related activities. 

Strong wage growth in tight labour markets in countries like the US and Australia have also driven producer prices to record highs – exacerbated by high attrition rates – threatening profit margins if higher costs are not passed on to consumers. In the coming months, a key threat is unanchored inflation expectations, as wage-price spirals challenge policymakers, even if unemployment is high.

Political risks also increase with stubborn inflation, and we’re particularly mindful of the political impact that price rises will have, particularly in emerging and developing countries. Sustained inflation is the likely trigger for policy-tightening, which could dampen the economic recovery in emerging markets as they struggle to sustain fiscal support in the face of the rising cost of debt. Furthermore, inflation has – in large – been driven by rising energy and food prices. Combined, pandemic fatigue and the rising cost of essentials are a potent mix and can cause popular frustrations to boil over. Dun & Bradstreet’s Political Environment Risk Index indicated a worsening of the global political risk environment through 2021, a trend that could extend into 2022.    

5. Climate economics accelerates following COP26

Climate concerns continue to grow louder, meaning economic decisions will be increasingly viewed through a climate prism as regulators, policymakers and governments issue mandates to push more climate-focused agendas. Energy-intensive sectors will face increasing investment and policy challenges, while there will be mounting pressure on energy commodities in the medium-to-long term – causing possible disruption to economies, as recently seen in Europe and China.

Perhaps the most important outcome of COP26 was the growing recognition of private-sector commitments to realise climate goals. ESG is increasingly important for business decisions and, as green parties find their way into ruling coalitions, more ESG-related regulations will be drafted as countries commit to climate-change targets. 

Despite this, the recent energy crisis has highlighted the problem with delivering on some of these promises, forcing countries to consistently undershoot or double-down on introducing renewables. Beyond 2022, climate economics will likely put energy commodities under yet more pressure. Because as nations do away with fossil-fuel power plants, heating solutions and transportation, many coal mines and gas fields will be mothballed.   

6. SMEs face unique pandemic stressors

Small businesses traditionally struggle with cash flow, often relying on personal savings and higher-interest credit facilities – such as credit cards – for operational expenses, compared to larger firms. Even if policymakers retain relief programmes for SMEs, the cost of servicing debt will be higher in 2022 as central banks engage in monetary tightening to anchor inflation expectations. Consequently, the risk of delayed payments or defaults by SMEs is elevated this year.

SMEs will also continue to be acutely affected by their inability to compete with larger firms that can attract labour at higher wages. This is a key risk in the coming months as the so-called Great Resignation sweeps across the UK. There is a higher concentration of SMEs in sectors such as leisure, hospitality and retail, which are among the industries with the highest quit rates in the US. 

So, as you can see, 2022 is very much picking up where 2021 left off –disruption and uncertainty is set to be a persistent theme in the year ahead. Hope and the promise of normality lingers on the horizon, but that’s not to say the road ahead won’t be without its challenges, making data an essential ally to mitigate risk and maximise margins in 2022.

About the author: Arun Singh is Global Chief Economist at Dun & Bradstreet.