Business insolvencies to rise in 2022 in first since Covid: Euler Hermes
On August 25, 2020, pedestrians in protective masks pass by an out-of business sign at a Harlem retail store.
Noam Galai | Getty Images
A new Euler Hermes report shows that business insolvencies could rise because governments will withdraw the support measures that helped businesses stay afloat during Covid-19.
Euler Hermes released a Wednesday report that stated business insolvencies worldwide are likely to rise by 15% in 2022. This projected rise follows two years of declining insolvencies: Insolvencies fell 12% in 2020, and are expected to drop another 6% by 2021.
Even with the expected increase in 2022, overall insolvencies will likely remain 4% lower than in 2019 — before Covid spread globally, said Euler Hermes.
Maxime Lemerle of Euler Hermes’ sector and insolvency research said, “Looking at insolvency level, governments succeeded in helping businesses face the crisis. Massive state intervention prevented one in two insolvencies Western Europe, and one in three US in 2020.”
“Their extension insolvencies will remain at a low level by 2021. However, what happens next is dependent on the actions of governments in the coming months.” he said.
The pandemic erupted in response to increased government spending on health, household and business support. There are many support measures, including tax reductions and deferrals as well as state loans and guarantees as well as cash transfer.
To keep the money flowing to the economy, central bank policies were relaxed.
As the world economy recovers after the Covid slump, some governments are easing back on support measures. However, central banks and other financial institutions have increased interest rates to help.
Euler Hermes’ research has shown that insolvencies of business are returning to prepandemic levels in certain emerging markets. According to the report, many of these countries had to place restrictions in order to stop new Covid outbreaks and have received less policy support.
The insurer said that insolvencies in Africa could surpass those of pre-pandemic years as early as this year. However, they would be higher in Central/Eastern Europe or Latin America by 2022.
Euler Hermes predicts mixed trends in insolvency in Western Europe.
- Spain and Italy, among others could experience insolvencies that exceed 2019 levels by 2021 and 2022.
- Some countries, including Portugal, Sweden, and Switzerland could see a rise in insolvencies, although not to pre-Covid levels.
- Insolvencies in France, Germany, and Belgium will be kept low by large support packages and their extension.
Euler Hermes stated that insolvencies are expected to increase by 18% in Asia-Pacific in the next year. The insurer said that India will see a 69% increase in its debts next year, following the suspension of court proceedings for selected times between 2020-2021 and Covid.
Euler Hermes added that the U.S. will probably keep insolvencies down in 2021-2022 with a combination “massive support” as well as a strong economic recovery.