As markets set a course for recovery, Atradius’ Insolvency Forecast reveals the likely extent of business failures in the wake of the coronavirus pandemic. Entitled ‘2021: A turn of the tide in insolvencies’, the report forecasts that global business insolvencies are set to rise 26% in 2021 with a number of markets forecast to exceed that level by a significant margin. Australia tops the forecast with an expected rise of 88%, followed by France, Singapore and Austria with forecast increases of 80%, 75% and 73% respectively, while failure rates in the UK are expected to rise by 56%.
The near across-the-board growth in insolvencies follows a year of anomaly where governments introduced fiscal measures and bankruptcies regime changes to protect businesses from failure. As a result, global insolvencies dropped 14% in 2020. Singapore, Australia, France and Austria saw the greatest drop in insolvencies with declines between 40%-41%. Insolvencies in the UK fell by 27%. However, as central support is gradually unwound, a sizeable U-turn in failures rates is expected.
An analysis of cumulative insolvency growth demonstrates bankruptcy levels at the end of 2021 will be higher in virtually all markets than in 2019. Spain has the highest cumulative insolvency growth with an increase of 29%, followed by the Netherlands and Hong Kong at 19%. The forecast cumulative insolvency growth in South Africa and the UK is 14%.
Atradius highlights three forces shaping the insolvency forecast for 2021. Firstly, is the delay of bankruptcies that would have occurred in 2020 under normal circumstances. Secondly, is the scale of fiscal support, expected to be quickly phased out in the second half of the year. The final force is the strength of economic growth in 2021 and how responsive insolvencies are to GDP growth.
After a year of global recession, Atradius reports 2021 will bring “new hope” as recovery sets in. After a 3.7% contraction in 2020, global GDP growth is estimated at 6% in 2021; remaining modest in Q1 and accelerating as restrictions ease. In the UK, a strict lockdown and Brexit uncertainty contributed to a 9.9% drop in GDP in 2020 with a renewed lockdown in January placing the economy on a weak footing at the start of 2021. Atradius forecasts the UK economy will expand 5.9% in 2021, covering around half of the GDP losses from the pandemic. Meanwhile, the Eurozone saw a 6.8% GDP contraction in 2020 with a recovery of 4.2% forecast in 2021. Recovery is dependent upon the evolution of the pandemic and success of vaccination campaigns.
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.”