Study predicts 20% more bankruptcies globally because of the pandemic

The global economy will experience the worst recession since World War II as a result of the coronavirus pandemic and will witness a wave of insolvencies, which will increase in Europe by 19% and in the United States by up to 25%, the German subsidiary of the credit insurance company Euler Hermes predicted on Monday.

In a statement released through the networks, the subsidiary of the German insurance company Allianz warns that the world economy will contract in 2020, losing 3.3% of its value, while the volume of goods and services exchanged will be reduced by 15%, which will mean losses of 3.5 billion dollars.

"At first everything pointed to 2020 being a quiet year," said the chief economist of Euler Hermes and Allianz, Ludovic Subran, in statements collected by the statement. "But then the coronavirus arrived. A textbook black swan; and suddenly everything changed. One bad item of news after another, starting with the export crisis, through an earthquake in the financial markets, the fall in the price of oil, to a fall in consumption on an almost global scale," Subran added.

The economist, who compared the consequences to the "impact of a meteorite", said the collapse of the global economy will be twice as severe as during the 2008 financial crisis, noting that the traces of the event "will not disappear overnight".

The increase in bankruptcies on a global scale will triple the figures forecast before the start of the pandemic to 20%, according to a statement by Euler Hermes, based on an analysis published by the insurer on 23 April.

While in China insolvencies will increase by 15%, in Europe they will increase by 19% and in the USA by 25%, the study assures, that in the case of Europe the mitigating effect of government aid stands out.

Although economic and public life in Germany is already in a phase of reactivation, Euler Hermes predicts that insolvencies will increase by 10% with respect to the previous year, while the GDP will contract by 8.9%.

"Liquidity and stability measures are a tremendously important first step to quickly stabilise the economy," said Euler Hermes' Managing Director for Germany, Austria and Switzerland, Ron van het Hof. "The other side of the coin is that the debts of many companies will increase. In order for companies not to be crushed by these mountains of debt, it is necessary, as a second step, to find solutions to determine how and in what time frame they can repay these debts or restructure them," he said, noting that the problem has been "postponed but not solved.

Finally, Euler Hermes' study warns of the existence of up to 13,000 "zombie companies" in the Eurozone: businesses that even before the pandemic faced numerous difficulties but managed to survive until now thanks to low interest rates.

For these companies, which are mainly located in the textile, automobile and electronics sectors, the coronavirus will however be the last straw, predicts the credit insurance company.