According to a recent study by Euler Hermes, the number of global business failures will increase by 15% by 2022, when government support programs will end in a pandemic. Companies in these countries will be the hardest hit.
Despite some challenges posed to medium and small businesses by the COVID-19 pandemic, recent research shows that the number of bankruptcies worldwide fell by 12% in 2020 and is expected to be -6% in 2021.
Euler Hermes, the world's largest receivables insurance company, published its economic study on Wednesday forecasting a sharp rise in business insolvencies worldwide from the second half of 2021 due to the end of government support programs for businesses and rising central bank interest rates.
Euler Hermes predicts that "the global insolvency index is likely to rise by 15% in 2022 compared with this year".
It is important for investors to understand the global trends taking place in medium and small businesses as they impact both the economy as a whole and individual stocks in particular.
Analysts at Euler Hermes believe that the rate at which government support is ending will be one of the main factors influencing the rise in bankruptcies. Significant government support has at least delayed the process for some firms.
The second underlying factor will be macro conditions and the growth rate of economies. In this respect, countries are getting different projections for the growth of business bankruptcies.
Euler Hermes believes that Africa should see an increase in business insolvencies already this year above pre-Pandemic Covid-19 levels.
There will be diverging trends in Western Europe. Spain and Italy are expected to see a significant increase in the number of bankruptcies by 2022, due to the high presence of covid-19 sensitive sectors in their regulations. At the same time, the increase in bankruptcies in Germany, France, Belgium and the Netherlands will be moderate due to the presence of large government incentives. The number of business failures in Central and Eastern Europe and Latin America is expected to increase during the pandemic of 2022.
Meanwhile, in Asia, bankruptcies are expected to be lower in 2022 than in 2019 due to the rapid recovery of the pandemic and the rebounding economy. As for the US, experts predict that bankruptcies will fall in 2022.