Corporate insolvencies on the rise worldwide

A report from Atradius published in August 2019 forecast a 2.8% increase in corporate insolvencies in developed markets across the globe, with a further 1.2% increase to follow in 2020. Even prior to the global coronavirus pandemic, which has done so much damage to economies and livelihoods around the world, the predictions indicated the first rise in insolvencies worldwide since the 2008 financial crisis.

Forecasts for the UK were poorer still, with business failure rates expected to increase by 10% in 2019 as a result of Brexit uncertainty and decelerating economic growth.

Has COVID-19 changed the forecasts?

It certainly has. In September this year, Atradius released an update with revised (and significantly worse) forecasts for 2020, with global corporate insolvencies now predicted to increase by 26% this year and global GDP set to contract 4.5% year-on-year. On a national level, the forecast for individual countries varies according to the severity of their exposure to the virus and their economic dependence on the worst affected industries, such as hospitality and tourism. Of all global markets, only China is expected to escape a recession. The United Kingdom, on the other hand, is reported to be the most severely affected country in Northern Europe in terms of GDP contraction, with the economic impact of lockdown combining with ongoing Brexit uncertainty.

Oddly (or so it seems), the figures for H1 2020 show plummeting insolvency rates, with the UK, France and Spain recording year-to-date figures of between -20% and -40%. However, there is a good reason for these figures; temporary changes to insolvency regimes made by governments across the world and state financial support measures (such as loans and grants) have both helped to keep businesses afloat. Unfortunately, this is likely to be offset by much higher insolvency figures in H2 2020 as the temporary relaxation of insolvency laws comes to an end in many countries.

What does 2021 hold?

Atradius’ 2021 forecast assumes that global lockdown measures will slowly ease throughout the second half of 2020, and that either a vaccine will be found in Q1 2021 or that the world will reach a point where social distancing isn’t having as significant an impact on economic activity. Even so, the forecast for 2021 varies hugely from country to country and insolvencies are still very much on the agenda. Spain is forecast to witness a massive 87% growth in insolvencies between 2019 and 2021, followed by Australia at 47%, France at 40%, the Netherlands at 39% and Turkey at 37%. The UK comes further down on the list, although insolvencies are still forecast to grow by 25% across this period.

Facing insolvency? We can help

The outlook certainly appears bleak, but your business could still come out the other side with the right advice. Our corporate insolvency and recovery experts will help you identify the options available to you and the steps you can take to get the best possible outcome for your business. For more information, please contact Maria Koureas-Jones on 01223 411421.

-Maria Koureas-Jones

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