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Theo Smid, economist with trade credit insurer Atradius, discusses the results of the firm’s recent forecast of corporate insolvencies for 2020.
The economic downturn, caused by the coronavirus pandemic, is an obvious culprit in the wave of corporate insolvencies being experienced around the world. Consequent lockdowns and social distancing are having a severe impact on corporate revenues, especially in industries such as retail, food supply, entertainment and hospitality.
Nevertheless, the number of insolvencies seems to be declining this year. Smid cites two possible reasons for the phenomenon. One is a temporary suspension by many countries of insolvency proceedings in courts. As a result, while companies are indeed experiencing failure, they’re unable to declare it officially. The second reason for the drop in insolvencies is the massive fiscal stimulus being provided by governments to keep businesses afloat. Many more would have failed without it, Smid notes.
Government aid in Europe has been substantial, although differing in degree by region. Companies in Northern Europe have received more aid than their Southern European counterparts. Still, says Smid, “the general picture is the same. Governments are stepping in.”
Cultural differences influence the degree to which various countries are recovering from the pandemic. Scandinavian countries are doing relatively well because their citizens are more willing to adhere to rules for social distancing and the wearing of masks in public. Belgium and the Netherlands, meanwhile, are in the throes of a second wave of the virus, forcing people back into their homes.
Earlier predictions of a virus by the first quarter of 2021 now seem overly optimistic, Smid says. Now the expectation is for relief in the second or third quarter of next year. “We expect that in the second half of next year there will be a swift rebound,” he adds.
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