Insolvencies to ‘surge’ by 26% in 2021: Atradius

Insolvencies are set to jump 26% globally this year with several European countries likely to be worst hit as the fallout from Covid-19 finally impacts bankruptcies, according to Atradius. This would follow a 14% fall in insolvencies last year when governments introduced fiscal measures and bankruptcies regime changes to protect businesses from failure, said the trade credit insurer. Atradius added that analysis of cumulative insolvency growth shows that bankruptcy levels will be higher in virtually all countries at the end of this year than they were in 2019. Australia is predicted to see the biggest rise in insolvencies in 2021 as it returned to normal bankruptcy procedures on 1 January 2021, ahead of most other countries after managing to avoiding the worst of Covid-19. France (85%), Singapore (75%), Austria (73%) and Belgium (61%) will be the next hardest hit by insolvencies this year, according to Atradius. Other European countries will also suffer. The UK’s insolvency rate is expected to increase by 56%, Spain’s by 49%, Italy’s by 48% and the Netherlands’ by 44%. Further down the list come Finland on 31%, Denmark on 23%, Switzerland on 22%, Germany on 20%, and both Norway and Portugal on 19%. Atradius highlighted three forces shaping its insolvency forecast for 2021. Firstly, the delay of bankruptcies that would have occurred in 2020 under normal circumstances. Secondly, the scale of fiscal support is expected to be quickly phased out in the second half of this year. Third is the strength of economic growth in 2021 and how responsive insolvencies are to GDP growth. “In some markets (Austria, Spain, United Kingdom), the recovery is weak compared to the 2020 contraction, which leads to upward pressure on insolvencies. In other markets the recovery in 2021 is relatively strong (New Zealand, Canada), generating a downward pressure on insolvency growth," said Atradius. "Regarding sensitivity of insolvencies to GDP growth, this ‘elasticity’ is high for instance in the Netherlands, Spain and Australia. As a consequence, we see a rather strong cumulative increase of insolvencies between 2019 and 2021. The high elasticity of insolvencies to GDP growth in the three markets is the result of the rigidity of the bankruptcy laws, which are very creditor-friendly,” it explained. The likely near “across-the-board” growth in insolvencies follows a year of “anomaly” where global insolvencies actually fell by 14% despite the pandemic, the company added. Singapore, Australia, France and Austria saw the greatest drop in insolvencies with declines between 40% and 41%, according to Atradius figures. Insolvencies fell by 32% in Belgium, 29% in Italy, 27% in the UK, 17% in Germany and the Netherlands, 14% in Switzerland, Denmark and Spain, and 5% in in Portugal. But with bankruptcies set to rise this year, Atradius said insolvency levels will be higher at the end of 2021 in nearly all markets than in 2019. Spain will see the highest cumulative insolvency growth with an increase of 29%, followed by the Netherlands and Hong Kong at 19%. The UK’s cumulative insolvency growth between 2019 and 2021 will be 14%, Portugal’s 13%, Belgium’s 9%, France’s 8% and Finland’s 7%, according to Atradius. The cumulative rate will be 6% in Norway, 5% in Denmark, Austria, Switzerland and Sweden, and 4% in Italy and Ireland. But it is forecast to be flat in Germany. Simon Rockett, head of UK risk underwriting at Atradius, said: “With a challenging trading environment ahead, businesses need to be switched on to the very real risk of insolvency and non-payment. Insolvencies can affect any business, small or large, new or well established, as well as creating a domino effect rippling up the supply chain. “The best tool in your armoury is information. Undertake a comprehensive assessment of your buyers – and your buyers’ buyers – as well as the wider sector and market. Ensure this information is kept up to date so you can spot the risks early and take preventative action. A robust trading strategy is of the utmost importance to mitigate the risks and trade safely. Do not cut corners and if you don’t have the resource, outsource it. Finally, don’t be overwhelmed. Risks are part and parcel of any trading relationship, they just need to be well managed. Being flexible, adapting to new risks, taking a hard line on risk mitigation and bolstering your approach by taking protection against non-payment will make the difference between surviving and thriving,” he added. Atradius expects global GDP to increase 6% this year after falling 3.7% in 2020. The eurozone is forecast to see GDP increase by 4.2% in 2021 after a 6.8% contraction last year. The UK's GDP dropped 9.9% in 2020 as Brexit combined with strict Covid-19 lockdowns. Atradius expects a 5.9% increase in UK GDP this year.

Insolvencies to ‘surge’ by 26% in 2021: Atradius

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