France/Austria amongst hardest hit by insolvencies

Credit insurance giant Atradius predicts a 26% rise of insolvencies in 2021. The increase is expected to take place in all major regions and countries, except Turkey.

The upward trend is not a surprise, it states, due to temporary measures that kept insolvencies unusually low in 2020 (insolvency law amendments, fiscal support). But these will be gradually phased out in 2021. The level of bankruptcies at the end of 2021 will be higher in virtually all markets than it was in 2019.

The percentage increase of insolvencies in 2021 is highest in Australia, France, Singapore and Austria, all countries that had strong government measures in place in 2020. 

Pace of economic recovery varies

After a year of global recession, 2021 is bringing new hope as the recovery will set in. Global GDP growth is estimated at 6.0% in 2021, after a 3.7% contraction in 2020. The rollout of vaccines is underway, and positive trial results should boost vaccine availability as the year progresses.

While global growth in Q1 of 2021 is likely to remain modest due to activity restrictions in order to bring Covid-19 numbers down, an acceleration of GDP will take place in the rest of the year.

However, there are still risks to this outlook, mainly linked to the evolution of the pandemic and the success of vaccination campaigns. New COVID-19 infection cases remain high in some countries, such as Brazil, France, Italy and Turkey.

While vaccination has started almost everywhere in the developed world, the pace has to accelerate in order to get a substantial part of the population vaccinated by the end of Q2.

The pace of GDP recovery in 2021 varies significantly around the world. The eurozone witnessed a 6.8% GDP contraction in 2020, but with a moderate 0.7% quarter-on-quarter GDP decline in Q4 it coped better than expected with re-imposed COVID-19 restrictions.

While it is likely that ongoing lockdowns and the slow start of the vaccination rollout will lead to a double dip recession in Q1 of 2021, there is light at the end of the tunnel. As vaccination programmes gain momentum and the pressure on health systems subsides, containment measures are set to relax gradually. This should lead to an economic recovery as of Q2, bringing Eurozone GDP growth to 4.2% in 2021.

Countries that experienced the deepest recessions in 2020 will generally witness the strongest expansion in 2021. Several factors determine the strength of the economic recovery. First, the stringency of lockdown measures and the speed at which they can be reversed. Second, the sectoral composition is also affecting the strength of GDP growth.

Due to the importance of tourism for their economies, Portugal, Spain, Greece, Italy and France recorded a strong negative impact on GDP in 2020. As restrictions on tourism and travel are gradually lifted, demand for those services will increase, helping the recovery in those countries.

However, tourism flows will not fully recover in 2021, as some people will refrain from travelling to limit health risks. Additionally governments could be reluctant in opening their borders, given that the pace of vaccination differs per country.

The United Kingdom experienced a deep recession in 2020 (-9.9% GDP) due to strict lockdown measures and Brexit uncertainty. In January 2021 the British government imposed a third nationwide lockdown in response to the steep rise in COVID-19 cases associated with the more transmissible variant of the virus.

This has placed the economy on a weak footing at the beginning of 2021. The good news is that the UK and the EU finally agreed on a free-trade agreement, limiting the cost of exiting the common market compared to a no-deal.

In 2021 Atradius forecasts the UK economy will expand 5.9%, which covers only about half of the GDP losses from the pandemic. It expects a meaningful relaxation of lockdown measures as of Q2, as the vaccination programme is well underway.