COVID-19 is leaving its long shadow on businesses. With governments slowly withdrawing stimuli and support packages, business insolvencies are set to rise for the first time in two years.
Leading global credit insurer Euler Hermes reported that globally business insolvencies are set to rise by 15 percent in 2022. The previous year had seen a decline of 12 percent and a forecasted decline of 6 percent in 2021 for business insolvencies.
“Looking at insolvency levels, governments succeeded in helping companies face the crisis: Massive state intervention prevented one out of two insolvencies in Western Europe and one out of three in the US in 2020,” said Maxime Lemerle, Head of Sector and Insolvency Research at Euler Hermes.
Government support for business means that even as insolvencies are set to increase in the coming year, they will still remain lower than 2019's increase by 4 percent. The credit agency noted that insolvencies being lower were a direct result of state intervention.
“Their extension will keep insolvencies at a low level in 2021, but what happens next depends on how governments act in the coming months,” he added.
In light of the unprecedented situation of the pandemic, several governments introduced supportive policies to keep their economies afloat. Increased public spending, looser fiscal policy, cash stimulus, government bailouts, tax cuts, loans, deferrals and easier norms all contributed to keeping households, businesses and critical sectors running.
But as central banks slowly prepare to increase interest rates, and governments pull back on these policies, businesses will have to stand without support.
But Euler Hermes also pointed out that the recovery and impact of COVID-19 is split across regions and economies. In emerging economies, insolvency levels are already approaching pre-pandemic levels. India, where the second wave was not accompanied by large-scale supportive policies, is expected to see a huge surge of 69 percent in business insolvencies.
(Edited by : Shoma Bhattacharjee)
First Published: IST