Uptick in Business Bankruptcies Expected

Business bankruptcies are predicted to rise next year as governments pull the plug on pandemic-related financial support, CNBC reported on Wednesday (Oct. 6), citing a report by Euler Hermes.

Worldwide, business insolvencies are forecasted to go up 15 percent next year, following two years in a row of decreases, according to the report. Bankruptcies dropped 12 percent last year and are anticipated to decline 6 percent this year.

See also: Study: US Government Aid Lessened Bankruptcies

Overall, however, the report indicates that business bankruptcies will be roughly 4 percent lower than in 2019.

“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,” Maxime Lemerle, head of sector and insolvency research at Euler Hermes, told CNBC.

“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.

Read more: Corporate Bankruptcies Drop 50 Pct Since Pandemic Start

The COVID-19 pandemic prompted a wave of government support — tax cuts, deferrals, loans, cash — around the globe to help businesses and households stay afloat during unprecedented lockdowns and restrictions. Central banks also worked to pump money into the economy.

But all those support initiatives are largely coming to a halt, and some central banks have already hiked interest rates as the world slowly rebounds from the pandemic economic slowdown. As a result, some emerging markets are experiencing a return to pre-pandemic levels of business bankruptcies, according to the research. Even as the Delta variant triggered new restrictions, government support was lower, per the report.

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Africa is anticipated to move past pre-pandemic insolvency levels sometime in 2021 and Central/Eastern Europe and Latin America are expected to follow in 2022, the report indicated. Spain and Italy could see bankruptcies go up to 2019-levels by 2021 or 2022, while Switzerland, Sweden and Portugal will experience an increase, but not quite as high as pre-pandemic 2019.

France, Germany and Belgium are still receiving generous government support and as a result will likely stave off a jump in insolvencies. The U.S. is also expected to keep insolvencies low in 2021 and 2022, according to the report. Asia-Pacific is predicted to see an 18 percent increase next year, with a 69 percent surge in India.