Biggest Jump in Company Insolvency Expected in Late 2020 Until First Half of 2021

While the economies of certain countries are coming out of the stagnation period caused by the pandemic, the biggest jump in company insolvency is expected to come in late 2020 until the first half of 2021, according to the latest report on the portal of the credit insurance company Euler Hermes.

This will be the result of the uneven starting conditions, as well as the different strategies of the opening of countries and urgent policy measures in the form of aid to companies, especially regarding the problem of insolvency.

The growth of the global insolvency index will probably reach a record level of 35% by 2021, because the problem has been accumulating for two years.

It also needs to be kept in mind that half the countries broke new records, for the first time since the 2009 financial crisis.

The main hotspots

The biggest jump will be recorded in the USA, in the amount of 57% between 2019 and 2021.

In Brazil, insolvency will jump by 45%, and in China the jump will be 40%.

In the principal European countries, such as Great Britain, it will be 43%, in Spain 41%, in Italy 27%, in Belgium 26% and in France 25%.

According to the projections, two out of three countries are expected to post stronger insolvency increases in 2020 than in 2021, primarily the USA, Brazil, China, Spain and Italy.

Still, according to the projections, each third country will see an acceleration of insolvency next year, primarily India, great Britain, France and, to a lesser extent, Germany.

The premature withdrawal of measures of help to the economy due to the pandemic might worsen things, increasing insolvency by 5-10%.

If the global economy takes longer than expected to recover from the Covid-19 shock, insolvency could grow from the already excessive 50% to 60%.

However, although state support to companies does mitigate the insolvency problem in the short term, it could also prop up the so-called zombie companies.

As projected, this would certainly increase the risk of falling into insolvency in the medium or long term.

In general, insolvency dropped by 7% in Central and Eastern Europe in the period before the pandemic, which pertains to the period until the first months of 2020.

According to the latest projections, company insolvency rate in that region is expected to jump by around 35% between late 2020 and mid-2021.

Of the countries close to our region, the report mentions Turkey, where insolvency is expected to grow by more than 50% compared to the 2020 crisis.

Also in the red zones is Bulgaria, but beneath the global average and with a growth that shouldn't be higher than 50% compared to the 2009 crisis.

The report also mentions Romania, which is however in the green zone, meaning that insolvency is expected to grow, but at half the rate of insolvency growth in 2009.

Euler Hermes

credit insurance

company insolvency