Insolvencies will rise across key Asian markets: Atradius

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Global trade credit insurer Atradius has published four new reports, on the markets of China, India, Indonesia and South Korea, and expects rising insolvencies across the region as the impact of the Covid-19 pandemic continues to bite.

Atradius points out that the coronavirus outbreak severely hit the Chinese economy in the first quarter of this year, immediately impacting retail and wholesale, travel, leisure, catering, real estate, transportation and shipping. Chinese GDP contracted 6.8% during the first quarter, with Atradius economists forecasting a sharp decrease in the economic growth rate in 2020, down to 1.5% from an increase of 6.2% in 2019.

“The subdued performance is driven by a crippling of China’s manufacturing and industrial output earlier this year. A comprehensive rebound is constrained by lingering weakness in domestic demand and sluggish demand from overseas markets, which is expected to lead to a decrease in exports of more than 7% year on year. Business insolvencies are also forecast to increase sharply this year, mainly affecting the SME segment,” states the credit insurer.

The repercussions of the pandemic have hit an already weakening Indian economy that grew just 5.3% in 2019, the lowest annual increase in more than six years. Atradius forecasts GDP to contract 5.7% in 2020, with both investment and industrial production forecast to shrink while exports are expected to decline by almost 13%.

“Extended supply disruptions from China have hurt those Indian industries reliant on imports, while business insolvencies are forecast to increase by more than 30% year on year,” states Atradius.

The insurer adds that a sharp downturn in economic growth is expected in Indonesia, with a forecast contraction in GDP of 2.7% in 2020, after growth of 5% in 2019.

“Private consumption growth, a main driver of Indonesia’s economic expansion, is expected to decrease 2% this year. Indonesian exports are forecast to decrease by more than 10% in 2020. However, with exports accounting for just 22% of GDP, Indonesia is less susceptible to global trade downturns than some other southeast Asian countries,” it notes.

The South Korean economy is expected to fall into recession this year, with the coronavirus pandemic disrupting regional supply chains and affecting global growth. Atradius forecasts a 0.7% contraction in GDP in 2020 in the economy, which is heavily dependent upon exports.

“As the world’s leading producer of displays and memory semiconductors and the second largest shipbuilder, South Korea’s exports account for about 50% of GDP. Delayed shipments of parts from China have impacted businesses, forcing them to operate below capacity; industrial production and exports are forecast to contract by 1.5% and 7.7% respectively in 2020. A further deterioration of external demand could weigh on company profits of businesses in export-dependent sectors with insolvencies expected to increase sharply in 2020,” concludes the insurer.