The unprecedentedly large state aid measures and repayment breaks by banks cannot prevent a wave of bankruptcies from rolling over the world in the coming months. Globally, the number of bankruptcies will increase by 14%. This is evident from joint research by the research departments of Euler Hermes, the largest credit insurer in the world, and the Allianz Group.
Economic growth will fall by 15% worldwide in the coming quarter. At the beginning of this year, the researchers had estimated a growth of + 2.4% for the global economy. This has been adjusted to + 0.8% in the recent survey. “We do assume that the measures to limit the coronavirus will be successful in the coming months,” says Walter Toemen, Director of Risk Underwriting at Euler Hermes Nederland.
The sunniest scenario is a short, severe recession. “Our researchers expect a short, sharp global recession with a sharp recovery immediately afterwards. That is what we hope for. At worst, the crisis will continue until 2021.
Due to the Corona outbreak, bankruptcy risk has risen so fast in some sectors that it has become nearly impossible to insure against it in the past two weeks. In particular in the cate industry, floriculture, events and creative industries, many companies will inevitably fall over, say credit insurers and other financial service providers.
The influx of new credit applications is so high in some sectors that financing is beginning to pinch. Alternative financiers are exposed to high risks due to the composition of their customer base. Factoring parties that are heavily involved in SMEs and self-employed persons will have a hard time. In the coming months, we will discover whether alternative financing also can survive in times of crisis. ”
The only way out, according to some specialists, is that creditors and suppliers of, for example, restaurants stretch their payment terms enormously. The largest three credit insurers in the Netherlands already took measures last week. They give debtors an extra thirty days to pay invoices before proceeding to collect and pay out the damage.
If it is possible to contain the Corona virus, not all danger is immediately gone. According to Toemen, sharp downward movements in the commodity and equity markets could lead to further liquidity stress. The recession will deepen as a result. “Reducing the massive aid operations can also lead to an imbalance. Countries will soon be left with enormous budget deficits. The question is how to deal with this. These are all factors that can make restarting the engines difficult. ”
Is Corona going to hit the global economy harder than the credit crisis?
The forecasts for the impact of the Coronavirus on the world economy are very bleak. The International Monetary Fund (IMF) was clear: the recession hitting the global economy will be similar to the 2008 crisis, or worse. Eighty countries have already approached the organization for financial aid. Economists have also been adjusting their expectations remarkably quickly lately.
Goldman Sachs already anticipates a 1% contraction in the global economy this year, which would outpace 2009. Like all analysts at the moment, he expects a strong recovery in the second half of the year. In which the comparison with 2009 is more favorable in one respect: governments make ample budget money available to absorb the shock and the central banks pursue a money policy.
Sources: this article is a translated version of crdt.eu