The latest Atradius Economic Outlook looks at country-specific forecasts on corporate insolvencies.
While insolvencies declined on almost all markets in 2020 due to government measures, the return to normal pre-pandemic insolvency figures started already last year. In Europe, Spain and the Czech Republic reached their pre-pandemic default rates in 2021.
Worldwide, this year has seen an increase in the number of defaults as governments phase out their pandemic support programs. Consequently, the number of defaults has been on the rise, particularly in many Western European countries as well as in Australia and Canada.
We expect that the number of insolvent companies will increase sharply compared to last year, especially in the UK (59%), France (58%), Austria (78%), Belgium, Canada and Australia (49% each).
In New Zealand and Hong Kong, government support programs are expected to continue until the end of this year. Therefore, corporate insolvency rates are also expected to remain low in these countries. In addition, the situation is expected to remain stable in Sweden, Singapore, South Korea, Japan, the United States, Spain and the Czech Republic.
In the United States, Japan, the Netherlands and South Korea in particular, companies appear to have benefited significantly from governments’ generous Covid-19 subsidies. As a result, companies will be supported by their good liquidity positions for some time even after the end of subsidy programs. However, we forecast increases in insolvencies in 2023 for the United States (81%), the Netherlands (77%), Singapore (76%) and Italy (51%).
We forecast that the insolvency rates will start to decline after 2023, as companies, which are unable to adapt to the changed operating environment or unable to survive without external support, will have defaulted by that time.
There are also many other factors affecting companies' ability to pay, including the indirect effects of the conflict between Russia and Ukraine. For the euro area, the effects of the war are significant. On other markets, the impact of the conflict is mainly indirect. In the Latin America, for example, the war’s impact on the economy is relatively small.
Juhani Laitala, Country Manager of Atradius Finland, comments:
- Businesses need to adapt to an environment where significant state support is not available. This can be a challenge for indebted companies. Inflation has a strong impact on everyone's daily life. If there ever was a time to protect your company's cash flow from unnecessary risks, it is right now. At the moment, "prepare for the worst" is the best advice if you want to survive the tough times unscathed.
Download the full report here.