Insolvencies: More bankruptcies expected for 2020

In a recent note on global insolvencies, Euler Hermes writes: "Export risks lurk virtually everywhere in 2020- there is hardly a 'safe haven' anymore."

Causal factors: persistent economic weakness, political and social uncertainties
Euler Hermes sees the reasons for the continuing rise in insolvencies worldwide in the ongoing economic weakness, particularly in the industrialised countries and the manufacturing sector. Weak demand has caused inventories to rise in many places and led to overcapacity, especially in the automotive industry. The continuing reverberations from trade conflicts, political uncertainties and social tensions will also keep companies on their toes in 2020.

Widespread increase in insolvencies in Europe - moderate growth in Switzerland, France suddenly top of the class
Insolvencies in Western Europe are also expected to rise by 3% in 2020 (2% in 2019). Many countries
grow more slowly in times of economic downturn than would be necessary to keep insolvencies stable.
Holding. "In Western Europe, it has been shown in the past that this threshold can be reached at a
growth in gross domestic product (GDP) of around 1.7%", says Stefan Ruf, CEO of Euler
Hermes Switzerland. "In Switzerland, as in the previous year, the increase remains moderate at 1%.
- However, the global trend in insolvencies is having a significant impact on our export industry".
In Switzerland, a demographic effect must also be taken into account: In 2019, so
many new companies have been founded than ever before, and from the increasing number of registered
companies results in a higher number of bankruptcies.

Denmark (+6%), Spain, the Netherlands and Ireland (+5% each) and Italy (+4%) are the main contributors to the rise in insolvencies in Europe. But the UK is also facing a further increase in insolvencies of around 3% in the wake of Brexit. The notable exception in Europe is, of all places, its French neighbours, for whom economists are forecasting a stagnation in insolvencies in 2020 after a long period of rather difficult economic times.

"There are three reasons why France is suddenly ahead," says Ludovic Subran, chief economist at Allianz and Euler Hermes. "Firstly, the country has made important economic decisions. Second, the roughly 17 billion euro stimulus package with tax breaks for pensioners that President Macron launched last year to get the 'yellow vests' back off the streets is paying off. This has boosted private consumption. Last but not least, in times of trade conflicts and weakening global trade, the French economy also benefits from a much lower dependence on exports than, for example, Switzerland or Germany."

China still in the cellar - but red lantern goes to Chile for the first time with 21% gain
China passes the red lantern to Chile in 2020 after three years. For the South Americans, insolvencies are expected to increase by 21% in the current year. After Chile, Slovakia (+12%) and India (+11%), however, China remains at the very bottom of the rankings. In the Middle Kingdom, economists expect another wave of bankruptcies and an increase in the number of cases by another 10% in 2020 (following an already massive rise of around 20% last year), as well as in Singapore (+10%) and Hong Kong (+9%).

Brazil achieves turnaround after 8 years, USA and Canada on the other hand with growth again
Globally, the class leader in insolvency development is also quite surprising: for Brazil, Euler Hermes expects 3% fewer bankruptcies than in 2019, against the global trend, on a par with Hungary (-3%). Greece and Lithuania (both -2%) as well as New Zealand, Poland, Norway, Luxembourg and France (all 0%) will also be able to buck the general trend.

The USA and Canada, on the other hand, will see a trend reversal into the negative in 2019 and also in 2020. Since 2010, insolvencies in the USA have declined every year. It is only in 2019 and 2020 that there will be growth here again, with +3% and +4% respectively. In Canada, insolvencies have even shown a steady downward trend since 2002, before the expected increase of 5% in both 2019 and 2020.

Large-scale insolvencies: Turnover and thus damage to the supply chain increase dramatically
The trend in large insolvencies among companies with a turnover above the €50 million mark remains worrying. In the first nine months of 2019, these rose globally by only one case to 249 compared with the same period last year (248). However, the turnover of large insolvent companies has climbed to more than 145 billion euros (EUR billion), up from EUR 106 billion. This is more than EUR 39bn and around 38% higher than in the same period last year.

The domino effect of major insolvencies on the supply chain is usually very large. The higher the turnover of the bankrupt candidates, the higher the damage to the individual suppliers. Big names alone do not provide security in 2020 either.

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