The Strategist

Experts: Bankruptcies will rise in 2020

01/28/2020 - 09:29

The number of corporate bankruptcies in the world in 2020 may grow by 6% amid the still low growth rates of developed economies, trade disputes and political uncertainty, experts at Euler Hermes insurance company (part of the Allianz group) forecast.

Despite the fact that the current easing of financing conditions is a positive factor, increased price competition and higher wages will limit the growth of company profits, the authors of the report believe.

Last year, the number of bankruptcies in the world grew by 9%. The main contribution to this growth was made by China (plus 20%), as well as a trend change (a return to an increase in the number of bankruptcies) in Europe (plus 2%) and North America (plus 3%). As a result, the total bankruptcy index (the number of insolvency cases in each country, compared with its share in the total GDP) returned to the indicator of 2013 and reached 128 points (the level of 2000 was adopted for 100 points).

In addition to an increase in the number of insolvency cases, a high level of bankruptcies of large companies (with revenues of over € 50 million) is recorded. In the first three quarters of last year, there were 249 such cases (the turnover of these companies amounted to more than € 145 billion, while for the same period in 2018 - by € 39 billion less).

This year, the main increase in the number of bankruptcies will again occur in Asia (plus 8% after rising 19% last year), including in China the indicator will grow by 10% (after 20% in 2019), in India - by 11% (35%), experts expect. Last year, companies most often went bankrupt in sectors such as construction, agriculture, metallurgy and chemical industry. The Asian region accounted for 17 of the 30 largest bankruptcies. Among the risks, the authors of the report note excess capacity in the production of electric vehicles in China. High bankruptcy growth is also expected from Hong Kong and Singapore. The largest increase in bankruptcies will be in Chile, which has faced the crisis (plus 21%).

In the US, the figure could be 4%. An increase in the number of bankruptcies is also expected in European countries: in Germany and the UK - by 3%, in Italy - by 4%, in Spain - by 5%.