Calm before the storm: Covid-19 and the business insolvency time bomb

Where are the hotspots? The top increases will be recorded in the U.S. (+57% by 2021, compared to 2019), Brazil (+45%), China (+40%) and core European countries such as the UK (+43%), Spain (+41%), Italy (+27%), Belgium (+26%) and France (+25%). We expect two out of three countries to post a stronger rise in insolvencies in 2020 than in 2021 – notably the U.S., Brazil, China, Spain and Italy – but one out of three would record an acceleration in 2021 – notably India, the UK, France and to a lesser extent Germany. 

A premature withdrawal of supportive policy measures could make things worse, increasing the surge in insolvencies by +5pp to +10pp. And if the global economy takes longer than expected to recover from the Covid-19 shock, the rise in insolvencies could increase by as much as +50pp to +60pp. However, while further support for companies will limit insolvencies in the short-term, it could also prop up zombie companies, raising the risks of more insolvencies in the medium and long term.



Maxime Lemerle
Allianz Trade