Default risk lurking for Italian businesses

Government stimulus packages have helped businesses around the world to face the pandemic-induced downturn. But with these initiatives coming to an end, we are seeing an increase in the number of troubled companies. This is a common denominator in all countries but the extent of the problem is apparently dependent on the specific economic measures taken by states. A study from trade credit insurance provider Euler Hermes reveals that state interventions averted half of the possible insolvencies in western Europe in 2020 and one third in the US, resulting in an overall improvement in the trend against 2019. However, in general the economy is still not fully out of the doldrums and the support measures are yet to show their effects. One of the factors that will influence the actual trend of insolvencies starting next year is the range of new possible economic aid packages that will be implemented in the coming months. According to the study, global insolvencies dropped last year by 12% compared to 2019 and will still be sliding by some 6% in 2021. The year 2022 is expected to be marked by a gradual reduction in support policies, which over time will lead to insolvency figures stabilising. A rebound effect is already in the cards in 2022, with a surge of 15% expected. Much will depend on the pace at which the various economic support measures are pulled back. Given a gradual withdrawal, global insolvencies in 2022 will still be 4% lower than in 2019. The increase in corporate liquidity crises will feature a different trend in various countries, certainly influenced not only by their respective disengagement policies but also by the characteristics of their economic systems. In western Europe, Spain and Italy are likely to be hit by a rapid resumption of insolvencies by 2022, affected by the greater impact on the manufacturing sector, which is sensitive to the restrictions imposed by the pandemic. About 5,000 cases are estimated in Spain and about 10,000 in Italy. By contrast, Germany (16,000), France (37,000), Belgium (8,000) and the Netherlands (2,400) will take longer to return to 2019 insolvency rates, on the back of economies less impacted by the pandemic and thanks to the implementation of widespread safeguarding measures. Insolvencies in Italy will quickly rise this year and in 2022. However, Euler Hermes estimates that they will not reach 2019 figures in absolute terms. Companies in the fields of commerce, manufacturing, construction, tourism and catering – the sectors hardest hit by the coronavirus lockdowns – will bear the brunt. In fact, the entire Italian economic system will be plagued by insolvencies in a transversal manner, with the exception of the extraction industry. There will be a negative rebound effect after the two-year period of state support initiatives that helped reduce the total number of corporate liquidity crises. In 2020, insolvencies fell by 32%, for a total of 7,160 cases, the lowest figure since 2008. Currently, an increase of 50.2% is envisaged in the first eight months of 2021. At the end of 2021, as many as 10,500 cases (+47%) should be reached, which will surge to 12,000 (+14%) in 2022, in a correction process that should however remain below the levels of the years immediately prior to the pandemic.

Default risk lurking for Italian businesses

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