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Insolvencies start to rise in Europe with 33% global peak next year: Atradius

Italy, the UK and Australia are predicted to record the highest levels of corporate insolvencies in the second half of this year and 2022, with a “surge” in collapses following the withdrawal of coronavirus fiscal support, according to credit insurer Atradius.

Global insolvencies are expected to spike by 33% in 2022 after being kept down by Covid-19 fiscal measures, Atradius said.

It is already seeing rising insolvencies in Europe in the second half of 2021. And although insolvency rates are still heading downwards in North America and Asia-Pacific, Atradius expects all three regions to see rises next year.

Italy is predicted to record the highest level of insolvencies in 2022, up 34% on pre-pandemic 2019 levels, followed by the UK and Australia at 33%, Finland at 29% and Singapore at 28%.

Year on year, the rise in insolvency rates will be stark, with the UK alone expected to record a 70% increase next year. Elsewhere in Europe, Spain and the Netherlands are both forecast to report a 26% increase in insolvencies, with insolvencies in France up 23%.

Atradius said many countries extended fiscal measures and insolvency law amendments in 2021, delaying the anticipated spike in insolvencies caused by Covid-19 and fiscal measures that have created “zombie” companies.

“Many so-called ‘zombie’ companies have been created, whose financial situation is too weak to survive once economic circumstances return to normal,” Atradius said. It expects these firms to enter bankruptcy within four quarters of fiscal support ending.

Fiscal measures have been “effective” in buffering businesses from the impact of the pandemic, Atradius said, with insolvency rates falling by as much as 51% in South Korea in the first half of 2021, by 47% in Singapore and 44% in Australia.

Atradius said its global economic forecast is negatively affected by both the Delta variant of Covid-19 and the current supply-chain bottlenecks. It said most sectors should see supply-chain disruptions begin to unwind in the second half of 2021, with the exception of semiconductor shortages.

Damien Dawson of Atradius UK said businesses must be prepared for the tide of insolvency risk. “The escalation of insolvencies is, unfortunately, inescapable… Businesses must build up comprehensive insights into buyers and their ability to pay, through real-time monitoring alongside a robust credit management strategy, flexibility to adapt should warning signs arise and non-payment protection,” he said.

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