Company insolvencies rocket — with more still to come
Governments around the world are scrambling to save companies battered by coronavirus lockdowns but the world is nevertheless facing a surge in bankruptcies by a third, a study conducted by a trade insurance firm said on Monday.
“Covid-19 is creating an insolvency time bomb,” said the report by Euler Hermes, predicting a 35% cumulative jump in the number of companies that go bust between 2019 and 2021. The firm, which provides insurance for trade deals, said this would be a record for its global insolvency index — and that about half of countries will be setting new highs since the 2009 financial crisis.
The biggest increase among the world’s economic powerhouses will be in the US, with a 57% jump in insolvencies in 2021 compared to 2019, before
Other firms are left unpaid and new suppliers may be more expensive
the coronavirus struck. Bankruptcies are expected to soar by 45% in Brazil, 43% in Britain, and 41% in Spain. China is forecast to see a 20% surge in bankruptcies.
In the US, “the rapid spread of the virus is amplifying the trough in activity and generating a liquidity crisis for a larger set of companies”, said the report. “We do not expect the U-shaped recovery in the US to be sufficient to offset all the legacies of the crisis on financial metrics, nor to prevent the rise in insolvencies from continuing into 2021,” it said.
The insolvencies are disruptive as other firms are left unpaid or forced to scramble to find new, often more expensive suppliers. “The larger the company filing for bankruptcy, the higher the risk of a domino effect,” said the report.