Business bankruptcies will increase in 2022 for the first time since Covid: Euler Hermes

Pedestrians wearing protective masks walk past a closure sign outside a retail store in Harlem, New York, August 25, 2020.

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Business bankruptcies are expected to increase in 2022 as governments withdraw support measures that have helped businesses stay afloat during the Covid-19 pandemic, according to a new report from trade credit insurer Euler Hermes.

Globally, corporate bankruptcies are expected to increase 15% in one year in 2022, Euler Hermes said in a report released Wednesday. This expected increase follows two consecutive years of decline: bankruptcies fell 12% year-on-year in 2020 and are expected to decline a further 6% in 2021, the insurer said.

Even with the expected increase in 2022, overall insolvencies will likely remain 4% lower than in 2019 – before Covid spreads globally, Euler Hermes said.

“When it comes to levels of insolvency, governments have been successful in helping companies cope with the crisis: massive state intervention has prevented one in two bankruptcies in Western Europe and one in three in Western Europe. United States in 2020, ”said Maxime Lemerle, head of sector research and insolvency at Euler Hermès.

“Their extension will keep insolvencies low in 2021, but what happens next depends on how governments act in the months to come,” he added.

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Since the start of the pandemic, governments around the world have increased spending to support health systems, households and businesses. Support measures include tax cuts and deferrals, state loans and guarantees, and cash transfers.

Meanwhile, central banks have relaxed their policies to keep money flowing into the economy.

Some governments have started to reverse these support measures, while several central banks have raised interest rates as the global economy recovers from the crisis caused by Covid.

Regional trends

Corporate bankruptcies are returning to pre-pandemic levels in some emerging markets, according to Euler Hermes research. Many of those countries have had to reimpose restrictions to curb new waves of Covid infections and have received less generous political support, according to the report.

Bankruptcies in Africa are expected to exceed pre-pandemic levels as early as this year, while those in Central / Eastern Europe and Latin America are expected to exceed it in 2022, the insurer said.

Euler Hermes expects insolvency trends to be mixed in Western Europe:

  • Countries like Spain and Italy could see bankruptcies surpass 2019 levels by 2021 or 2022.
  • Countries like Switzerland, Sweden and Portugal could experience a rebound in corporate bankruptcies in 2022, but not yet to pre-Covid levels.
  • Large support programs and the extension of these measures are likely to keep insolvencies low in countries like France, Germany and Belgium.

Meanwhile, Asia-Pacific is expected to register an 18% year-on-year increase in bankruptcies in 2022, Euler Hermes said. A “strong surge” of 69% is expected in India next year after court proceedings are suspended for selected periods over 2020-2021 due to Covid, the insurer said.

In the United States, a combination of “massive support” and a strong economic rebound will likely keep defaults low in 2021 and 2022, Euler Hermes added.

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