Insolvency risk spiking in eastern Europe, warns Atradius

Insolvency risk is expected to spike for companies in eastern Europe this year as economies fight against global trade tensions, the US-China trade conflict and a potential no-deal Brexit, according to trade credit insurer Atradius. In a barometer of B2B payment practices across 1,500 businesses in seven eastern European countries – Czech Republic, Hungary, Poland, Slovakia, Turkey, Bulgaria and Romania – Atradius said the region’s corporate insolvency rate is expected to move from a 5% decrease last year to a rise of 2% in 2019. GDP growth in the region is expected to fall to 2.6% from 3.4% in 2018. Atradius said many eastern European economies are “under severe strain” and the current economic and political challenges are set to “trigger a sharp inflection in the insolvency trend”. Higher business bankruptcy levels are forecast this year in Turkey(+10%), Poland (+4%) and Romania (+3%), Atradius said, adding that manufacturers are most at risk. It noted that Slovakia has the highest use of trade credit in B2B transactions, while more than 24% of the average total value of domestic and foreign invoices issued by eastern European suppliers remained unpaid at the due date. The rate is highest in Turkey at almost 42%. Thomas Langen, senior regional director for Germany, central and eastern Europe at Atradius, said: “Strategically managing the risk of payment defaults by customers is essential to avoid severe cash flow problems and to pave the way for safe, sustainable business growth.” Meanwhile, in a new edition of its European macroeconomic update, ratings firm DBRS said the similar factors of Brexit uncertainty, Chinese economic slowdown and risk of US tariffs on European cars are driving down growth across Europe. It said growth in the region is expected to be “weak for the rest of 2019”. DBRS added that industrial production levels have contracted, driven by Germany. It also explained that countries with more limited exposure to global trade, including France and Spain, or those that have adopted fiscal stimulus, including France and the Netherlands, have performed better. Treating the UK separately, DBRS said Brexit uncertainty and the weaker external environment will “weigh” on UK GDP growth for the remainder of 2019. It added that the Bank of England’s monetary response to Brexit “could be in either direction”. Although the country’s current loose monetary policy and less restrictive fiscal policy “may” prevent the [UK] economy slipping into technical recession, the risk remains, said DBRS. The heightened risk of a no-deal Brexit is fuelling demand for trade credit insurance, but insurers are taking action to reduce their exposure to UK corporates and raising rates. Meanwhile, Coface has warned that Brexit is already having “very visible” effects on the Dutch export economy, adding that that a drop in the value of the pound has made products from the Netherlands less competitive in the UK. But despite Brexit and other economic headwinds, the credit insurer expects the country to deliver annual economic growth in line with the past decade during 2019 and 2020.

Insolvency risk spiking in eastern Europe, warns Atradius

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