Brazil and Mexico to see increase in insolvencies and payment delays, says Atradius

Business insolvencies in Brazil are expected to increase sharply by about 20% in 2020, while Mexico’s economic performance is expected to deteriorate steeply this year, according to two new country reports published by Atradius which review the economies of the two Latin American countries. Brazil’s economy is forecast to contract by more than 6% this year and the current economic decline has put an end to the modest economic rebound Brazil has experienced since 2017. Atradius’ report says Brazil’s vulnerability stems from its relatively high dependence on the service sector and commodity exports alongside its high public debt. It notes that private consumption is subsequently forecast to contract by 8.6% and investment by 10% in 2020, while exports are forecast to shrink by more than 4% this year. Atradius’ analysis of key industries reveals the ongoing recession is having a major impact on the business performance and credit risk of almost all sectors in Brazil. “Hit by widespread lockdowns and rising unemployment, the automotive, consumer durables, electronics and textiles sectors have a ‘bleak’ outlook. While the paper sector and the services sector (comprising mainly hotels, catering, restaurants, bars, entertainment and tourism businesses) both face a ‘poor’ outlook. Deteriorating demand from the oil and gas and the construction sectors have had a knock-on effect on demand for machines, metals and steel industries; all also rated with a ‘bleak’ outlook.” Indeed, the only positive signs are in the chemicals/pharma, financial services and food sectors which have a ‘good’ outlook. Atradius says that across all industries, businesses that rely heavily on imports are negatively affected by the weaker real exchange rate. It concludes that the default risk across all major sectors has sharply increased, and business insolvencies are expected to increase sharply in 2020. As for Mexico, Atradius’ country report warns that the level and intensity of Mexico’s recession is still to be seen as the pandemic and the risk of further comprehensive lockdown continues. “Currently, Atradius forecasts a 7.2% contraction in Mexico’s GDP in 2020 followed by a 4% rebound in 2021. Private consumption and investment are both forecast to decrease 7.6% and 14.8% respectively. Mexico’s exports are forecast to contract by more than 9% this year following a sharp fall in external demand and severe supply chain disruptions, particularly within the automotive sector,” it states. According to Atradius, the construction, machines/engineering, metals and steel sectors in Mexico all have a ‘bleak’ performance outlook while the agriculture, automotive/transport, consumer durables, electronics/ICT, oil/gas, paper, services and textiles industries have a ‘poor’ outlook. The chemicals/pharma, financial services and food sectors all have a ‘fair’ rating. “The current economic downturn will aggravate the situation for many businesses in a wide range of industries, weakening the financial strength of many, and triggering an increase in payment delays and defaults in the coming months,” the report states.

Brazil and Mexico to see increase in insolvencies and payment delays, says Atradius

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