Pedestrians wearing protective masks walk past an out-of-business sign outside a retail store in Harlem, New York City on August 25, 2020.
Noam Galai | Getty Images
Business insolvencies are set to rise in 2022 as governments withdraw support measures that have helped companies stay afloat during the Covid-19 pandemic, according to a new report by trade credit insurer Euler Hermes.
Globally, business insolvencies are expected to jump 15% on year in 2022, Euler Hermes said in a Wednesday report. That projected increase follows two consecutive years of decline: insolvencies dropped 12% on year in 2020 and is forecast to fall by another 6% in 2021, said the insurer.
Even with the expected increase in 2022, overall insolvencies will likely remain 4% lower than in 2019 — before Covid spread globally, said Euler Hermes.
“Looking at insolvency levels, governments succeeded in helping companies face the crisis: massive state intervention prevented one out of two insolvencies in Western Europe and one out of three in the US in 2020,” said Maxime Lemerle, head of sector and insolvency research at Euler Hermes.
“Their extension will keep insolvencies at a low level in 2021, but what happens next depends on how governments act in the coming months,” he added.
Since the start of the pandemic, governments around the world increased spending to support health care systems, households and businesses. Support measures include tax cuts and deferrals, state loans and guarantees, as well as cash transfers.
Meanwhile, central banks loosened policies to keep money flowing into the economy.
Some governments have started to roll back those support measures, while several central banks have raised interest rates as the global economy recovers from the slump caused by Covid.
Business insolvencies 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 received less generous policy support, the report said.
Insolvencies in Africa are expected to exceed pre-pandemic levels as soon as this year, while those in Central/Eastern Europe and Latin America would do so in 2022, said the insurer.
Euler Hermes expects insolvency trends to be mixed in Western Europe:
- Countries including Spain and Italy could see insolvencies rising above 2019-levels by 2021 or 2022.
- Countries including Switzerland, Sweden and Portugal could experience a rebound in business insolvencies in 2022, but not yet to pre-Covid levels.
- Large support packages and the extension of those measures will likely keep insolvencies low in countries including France, Germany and Belgium.
Meanwhile, Asia-Pacific is expected to register an 18% on-year increase in insolvencies in 2022, said Euler Hermes. A “strong surge” of 69% is expected in India next year after court proceedings were suspended for selected periods over 2020-2021 due to Covid, said the insurer.
In the U.S. a combination of “massive support” and a strong economic rebound will likely keep insolvencies low in 2021 and 2022, added Euler Hermes.