WHAT SHOULD WE KNOW TO DEAL WITH THE GENERAL WAVE OF DEFAULTS IN 2021?
As the end of this year approaches, it is clear that all countries face the double challenge of preserving health and the economy simultaneously. However, the toughest challenge for the companies will be to cope with the wave of defaults expected next year, 2021.
From Credit Report we inform all our clients about two key aspects of the commercial default that is to come.
Now is the best time for any importing or exporting company to review its capital liquidity levels and specially to certify the conditions of its commercial insurance. All of this while new strategies are designing to evaluate the current trading partners and new allies that may come along the way.
Below there is a basic guide with the essential data on the wave of defaults expected by 2021 to be discussed by the executives of trading companies internally.
What levels of default are expected?
Atradius firm, a specialist in commercial credit insurance and recovery services with a scope in 50 countries, projected a 26% increase in defaults by the end of 2020 compared to the previous year.
What are the key factors in this default projection?
What is the region where the lowest insolvencies are expected?
Europe stands out as the global region with the lowest increases in defaults. The estimation is that insolvencies may move between 6% and 20%, a lower average range than places like the United States.
Germany, France, Austria, Belgium, Switzerland and Italy are expected to have the lowest increases in defaults. Apart from the macroeconomic assessment, other factors in the design of policy within these countries also play a role.
In Germany, for instance, government encouragement is for firms to restructure in order to survive bad times, not to go bankrupt. Also, in Italy, there is little preference for companies to take the path of insolvency, but this is related to the cost and length of the associated legal process.
Which countries would be most affected by the wave of defaults?
The United States, Spain, Portugal, the Netherlands and Turkey are the countries where a greater number of companies are expected to opt for bankruptcy following the economic effects due to the COVID-19.
The fall of the Gross Domestic Product (GDP) is the essential element that Atradius’ firm considers for this classification. Although there are different elements in each country.
The internal dynamics in the United States, for example, do not encourage greater cooperation between the private sector and the state to tackle the economic effects of this new coronavirus. This differs from European policy where it is expected that liquidity backing can be extended over a longer period of time to ensure the viability of many affected companies.
These are all general data on the expected default wave in 2021, but if a company wants to understand its current condition and prepare itself properly, then it is best to analyse some more detailed patterns by city and economic sector.
At Credit Report we can help finance teams understand the specific landscape of their business partners around the world. Our database gathers up-to-date information from 190 countries and includes a detailed analysis that is tailored to each company’s information needs.