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Global corporate insolvencies to increase by 33%

At the end of 2022, insolvencies are expected to be elevated compared to pre-pandemic levels, according to new research published by Atradius.

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This increase is largely attributed to bankruptcies of businesses that were “saved” by government support in 2020, and the return of insolvencies to “normal” levels. In some places, a slow economic recovery can also contribute to higher insolvencies.


It expects global insolvencies to increase by 33% in 2022, as fiscal support will be completely phased out in most markets. Countries where it expects the highest cumulative growth in insolvencies in 2021 and 2022 compared to pre-pandemic levels are Italy, up 34%, as well as the UK and Australia, both predicted to see a 33% increase.


These figures come after a global decrease of company insolvencies of 14% in 2020. Atradius argued there were two policies responsible for this development. 


Firstly, most countries made changes to their insolvency regime in order to protect companies from going bankrupt. Secondly, governments across the world took measures to counter pandemic-related adverse economic effects and to support small businesses. 


Countries in Europe enacted laws in 2020 that temporarily froze bankruptcy proceedings or declared bankruptcies inadmissible, while Australia increased the debt threshold for companies to declare bankruptcy. All those countries witnessed a sharp decrease in insolvencies in 2020. 


Atradius’ expectation is that insolvencies will increase in most markets in the second half of 2021 and in 2022. In 2021, global insolvencies are forecast to show a modest one percent year-on-year decrease, followed by a sharp 33% increase in 2022. 


The insolvency projection has been significantly revised downwards when compared to the firm’s March 2021 insolvency report, something that’s been predominantly driven by the extension of fiscal support in many markets. 


It also believes that a share of businesses that were “saved” from bankruptcy in 2020 will face insolvency in the first 12 months after fiscal support has expired. However, thanks to the support packages, some companies will have a “reasonably strong cash position” for the time being. 


As such, those in an unsustainable financial position will be able to buy themselves time by running down their cash. Atradius does, however, think these firms will become bankrupt over the four quarters after the end date of fiscal support. 


On a regional level, it expects an increase in insolvencies in Europe this year, while the trend will still be downwards in both north America and the Asia Pacific. In north America, insolvencies are still very low due to strong US fiscal support and a robust economic recovery, while fiscal support in the Asia Pacific has also been sustained for a relatively long time. 


By 2022, Aratidus believes the level of insolvencies will still be elevated compared to pre-pandemic levels. This is driven by a combination of delayed insolvencies from 2020, the return of insolvencies to “normal” levels as fiscal support is phased out, and the effect GDP growth on insolvencies cause bankruptcies to increase in most observed markets.

 

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