The recovery of the global economy continues: Maintaining business continuity remains the key

While the COVID-19 pandemic remains one of the biggest challenges for businesses, the global economy is recovering. According to the Atradius Economic Research study from August 2021, losses have already been recovered in the second quarter of this year and the economy is expected to grow by 6.2 percent in the coming months. However, the level of recovery varies, in part due to uneven vaccination rates across countries and with the Delta variant being the main threat to recovery. At the same time, we anticipate that the number of corporate insolvencies worldwide will increase as many temporary measures to prevent insolvencies are phased out.

Although the global incidence rate of COVID-19 is increasing as more infectious variants spreads, public and economic sentiment is improving and the trade recovery continues. We estimate that global GDP will grow by 6.2 percent in 2021 and we forecast 4.7 percent growth for 2022. The Delta variant and slowed down vaccination rollouts in some countries remain the main risks for recovery.

According to the Atradius Economic Research, global merchandise trade has surpassed pre-pandemic levels, with the 12-month rolling average growing 3.5 percent y-o-y in May 2021. We expect that this revival will continue in the near term, but will lose some momentum. At the same time, the risk of rising inflation remains high, especially in emerging markets. This forces central banks to tighten the monetary policy, which holds back the recovery and threatens economic growth.


Eurozone and UK forecast

In connection with the follow-up of the vaccination program and the good situation in Europe, the lifting of further restrictions and, consequently, greater optimism among the public can be expected in the upcoming months. According to the European Sentiment Indicator (ESI), calculated by the European Commission, the sentiment of Europeans remains high. The index grew in July this year to 118.9, which is well above the neutral level of 100.

On the other hand, the eurozone inflation rate rose, reaching 2 percent y-o-y in May, its highest level since late 2018. Still, the European Central Bank is expected to continue its loose monetary policy – we do not expect the ECB to raise interest rates before mid-2024.

Our prediction is that the UK economy will grow by as much as 7.3 percent, but will not reach pre-pandemic size before 2022. Consumers are driving the recovery in the UK, with strong growth particularly in the hospitality sectors. This momentum is expected to continue. Government-sponsored loan programs have helped to keep corporate insolvencies low, and job retention programs have prevented unemployment from rising significantly.


The bankruptcy problem will intensify

The key to surviving the crisis is maintaining financial liquidity of companies. Although late payments are a normal occurrence in business, they can turn into serious financial troubles in the long run – payment backlogs are one of the most common causes of liquidity loss and, as a result, company bankruptcy. The gravity of the situation is evidenced by the fact that governments around the world have launched assistance programs to minimize business losses and protect trade from collapsing. Among the solutions implemented by European Union countries, one of the most important was the program supporting clients of trade credit insurers.

As it turned out, the governments’ actions did work. The widely expected increase in bankruptcies that was announced at the start of the pandemic did not occur in 2020. Although many companies struggled with payment gridlocks, the number of corporate insolvencies declined in most markets – the global decline amounted to 14 percent and was particularly noticeable in Europe and Asia, and slightly less in North America. New government policies in response to the crisis, including fiscal support for companies as well as a change in the rules of bankruptcy proceedings, were responsible for this decline.

At the moment, we are forecasting a reversal of this situation and a 12 percent increase in global insolvencies by the end of the year. The ongoing easing of restrictions is leading to a gradual return of the economy to normality. In most countries, this will likely result in the withdrawal of fiscal support and a return to previous insolvency rules. With the exception of Australia, Japan and Sweden, which still maintain very low levels of insolvencies, most markets will see an increase in corporate insolvencies this year.


Interested in this article?

The full text is available in the September ’21 issue of Credit Manager Magazine.


Author of the article:

Atradius is one of the world’s largest providers of trade credit insurance and credit management services. The Atradius Group holds approximately 26 percent of the global trade credit insurance market. Our business is conducted in 160 offices located in more than 50 countries around the world. Atradius currently employs over 3,300 people, while generating revenues of over 2 billion euro. In addition to credit insurance, we also offer international debt collection services through Atradius Collections. Atradius has been present in Poland since 2004, operating in the field of debt insurance for corporate clients and, through Atradius Collections, debt collection.

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