Corporate insolvencies are expected to grow 2.4% in 2020, a pronounced acceleration from the 1.4% increase recorded in 2019, largely resulting from the Coronavirus outbreak. The coronavirus outbreak slows in China and accelerates in the rest of the world, especially South Korea and Italy.
The outbreak of the coronavirus though is compounding the challenges to global trade and manufacturing, by weakening Chinese imports and tourism and causing disruption to global supply chains. The already-struggling global automotive sector is the most vulnerable industry to these disruptions. The mounting challenges have caused a downward revision of GDP growth forecasts around the world, especially in Asia, but also in Europe while less so North America.
It is estimated that the number of Western European businesses going bankrupt will rise 2.1% in 2020, up from a 0.2% decrease in 2019. Global uncertainties and protectionist trade policies have been key drivers of the upswing. These factors are compounded by the coronavirus, which together pose a negative risk to financial stability and corporate solvency in 2020.
The United Kingdom is facing another year-on-year 7% increase in corporate failures, the highest rate in Western Europe.
In France, weaker external demand is expected to weigh on economic activity as well, further compounded by the outbreak of the coronavirus. The number of insolvencies is forecast to increase 2% in 2020 on lower economic activity.
In Italy, sources forecast a stagnation of business failures in 2020 as the economy is coming to a standstill. GDP contracted 0.3% q-o-q in Q4 of 2019, the worst performance since early 2013, mainly due to subdued domestic demand and the sudden outbreak of coronavirus in the country spells further challenges for business activity – disrupting travel and supply chains, diminishing consumer and business sentiment, and declining tourist inflows.
In Ireland , the coronavirus outbreak poses a downside risk to Irish businesses as a small, open economy, especially for its tech sector, which is dependent on Asian supply chains.
Compared to other regions, Asia-Pacific faces the highest increase in insolvencies in 2020 in part due to its close ties to China. The coronavirus outbreak will strain the recovery in the ICT sector, which is a major Asian supply chain.
Japan, a key manufacturer of high-tech components for this chain, is facing a 5% rise in insolvencies this year. Supply chain disruptions and lower Chinese demand for imports will stifle the nascent recovery in Japan’s ICT sector, boding ill for Japan’s fragile economy.
Australia’s economic outlook is also negatively affected by the coronavirus outbreak. The downturn in East Asia is expected to adversely affect the export services sector in Q1 of 2020 through a lower turnover in tourism.
Overall, it is believed that a continuation of a modest GDP growth will keep insolvencies increasing at 2% in 2020.
Source: