Credit insurers expect a worldwide insolvency wave

Credit insurers expect a worldwide insolvency wave

5 October 2020

The corona pandemic is driving the economy progressively into recession. Credit insurers such as Euler Hermes, Atradius or Coface forecast a cumulative increase in global insolvencies of up to 35 percent by the end of 2021.

Many countries have taken measures to counteract this development and protect companies from bankruptcy. In various countries, for example, insolvency applications were temporarily suspended, creditors were prevented from opening insolvency proceedings and the debt threshold for a declaration of bankruptcy was raised. New laws have also been introduced to temporarily freeze insolvency proceedings or to declare bankruptcy inadmissible in order to prevent a wave of bankruptcies. However, as these measures are temporary, they do not provide long-term protection for companies, but merely postpone the problem. Ron van het Hof, CEO of Euler Hermes in Germany, Austria and Switzerland, is also warning: 

We are dealing with a ticking time bomb. This time bomb will go off in the third quarter of the year at the latest and the shock waves are likely to spread to the entire first half of 2021."

Credit insurers agree that even with the gradual start of economic activity and no second wave of the corona pandemic, credit risk will remain very high. Although economic recovery is being stimulated and there is hope that all countries' GDP will recover in 2021, bankruptcies continue to rise compared to last year and a recovery in 2021 remains uncertain.

 

Sources: 

https://www.eulerhermes.de/content/dam/onemarketing/ehndbx/eulerhermes_de/dokumente/2020-07-euler-hermes-insolvenzupdate.pdf
https://atradius.de/publikation/economic-research-2020-insolvencies-forecast-to-jump-due-to-covid-19.html
https://www.coface.de/News-Publikationen-Events/News/Coface-erwartet-Rezession-in-68-Laendern-und-weltweit-25-Prozent-mehr-Insolvenzen