The Insurance and Debt Collection Group atradius the offer for global GDP a contraction of 4,5% on an annual basis, which makes this recession worse than the 2009 crisis. China is the only major market expected to escape the recession: being ahead of the epidemic curve, Beijing felt the greatest economic impact in the first quarter of 2020, while in the according to the economic activity recorded a recovery of 3,2% on an annual basis. The recovery in 2021 is in any case uncertain: it will in fact be conditioned by the creation of a vaccine or, alternatively, by a state of the world in which the effects of social distancing on economic activities will be largely overcome.
RECESSION, LOCKDOWNS AND ECONOMIC SECTORS
The extent of the economic contraction varies from country to country and is influenced by many factors. First, it is expected that the economic downturn will be greater in countries where longer and more restrictive lockdowns have been applied: Italy, France and Spain are severely affected by the virus and have implemented long and strict containment measures. Secondly, issues of sectoral structuring must be considered: southern European countries such as Spain, Italy, France, Portugal and Greece are more exposed to the current crisis, as they are heavily dependent on tourism and services. On the other hand, Northern European countries are generally expected to see fewer contractions: Germany, Denmark, Austria and the Netherlands are less dependent on tourism and are doing better at containing new infections, with economies appearing to adapt more easily to social restrictions. Outside Europe, the US, Japan and Australia have a more positive outlook than most European countries.
CHANGES TO THE BANKRUPTCY LAW
Most countries have made temporary changes to the insolvency law framework to protect businesses from bankruptcy: These measures include temporarily suspending bankruptcy proceedings, making them inadmissible in the courts, for example by preventing creditors from starting proceedings or by raising the debt threshold required for a bankruptcy filing. The duration varies between countries, with the deadline set on average between May and December 2020. Belgium, Italy and Spain have enacted laws temporarily freezing insolvency proceedings or declaring bankruptcies inadmissible, meaning that creditors cannot go to court for the bankruptcy of a company that is unable to honor its debts. Other countries, such as Singapore and Australia, have raised the debt threshold for filing for bankruptcy. A third group of countries, including the Netherlands, Sweden, Denmark, Ireland, the United Kingdom and the United States, have not made any substantive changes to their regulations. However, in the case of the Netherlands and the United Kingdom, the bankruptcy legislation is subject to a broader review which may affect current bankruptcies. In the Netherlands, for example, it will be easier to impose a corporate restructuring on creditors, which could lead to fewer bankruptcies.
TAX POLICIES
Second, governments and central banks around the world have adopted measures to counter the economic effects and support small businesses. Fiscal measures had the greatest impact in the second quarter, when lockdowns were stricter and more extensive. In turn, the governments of Germany, the Netherlands, France and Australia have publicly stated that the measures will be extended beyond the second quarter. In the European Union, the Recovery Fund of 750 billion euros which redistributes funds from countries that have had the least hardship during the pandemic to those that have suffered the most from its effects. While effective in the short term, direct spending measures and tax cuts are unlikely to prevent a rise in insolvencies in the long run: even if they cover costs, they will not be able to prevent continued loss of profits, so affected sectors will have no choice but to file for bankruptcy and reallocate the remaining capital to more promising sectors. Furthermore, the fiscal packages approved to deal with the crisis weigh heavily on the public budget, becoming unsustainable if protracted too long, especially for Italy and Greece. Thus, the budgetary margin remains limited.
THE DIFFICULTIES FOR EXPORTS
In this scenario, the data released by theIstat report August was a timid month for Italian exports which recorded a slight economic downturn. After the performances of May (+37,6%) and June (+14,9%), last month sales to non-EU markets recorded a slight cyclical decrease, equal to -0,3%. The slight decrease on a monthly basis in exports is the synthesis of differentiated dynamics: down sales of energy (-19,6%), non-durable consumer goods (-1,6%) and capital goods (-1,3% ), an increase in consumer durables (+7,0%) and intermediate goods (+2,2%). However, on a quarterly basis, exports show a largely positive variation (+25,9%) spread across all groupings, with the exception of energy, to which durable consumer goods contribute in particular (+85,1%) and instrumental (+43,5%).
As regards Made in Italy destinations, exports to Opec countries (-27,5%), Mercosur (-25,5%) and Russia (-20,0%) are in sharp decline on an annual basis, while sales to China increased (+4,8%). On the other hand, the recovery phase of imports continues, growing both in the last month (+5,1%) thanks above all to a very intense increase in intermediate goods (+22,4%), and on a quarterly basis (+17,3 %), with the greatest increases for durable consumer goods (+70,7%) and capital goods (+31,3%). However, on a trend basis, imports recorded a larger but lessening contraction (-16,4%), mainly determined by the sharp drop in energy purchases (-50,3%). Purchases from Russia (-41,2%), Turkey (-28,8%), the USA (-24,7%) and the United Kingdom (-23,3%) recorded much larger trend declines than the average of imports from non-EU countries, while purchases from Mercosur countries appear to be on the rise (+25,1%). The estimate of the trade balance in August 2020 is equal to +3.272 million (against +3.039 million in August 2019). The surplus in the trade of non-energy products decreased (from +6.220 million to +4.882 million).
BOOM OF BANKRUPTIONS COMING SOON
Analysts predict much higher number of bankruptcies in the second half of 2020, +26% of insolvencies globally, based on a phasing out of fiscal stimulus measures and a reopening of courts and bankruptcy proceedings. The temporary relaxation of bankruptcy laws for most cases is expected to end in the third quarter of this year, as they weigh heavily on government budgets. The smallest increases in insolvencies are all found in Europe: in Germany, France, Austria, Belgium, Switzerland and Italy, insolvencies are likely to increase by 6% to 20%. The economic contraction in these countries is generally lower, with the exception of Belgium and Italy, and they have a lower responsiveness of insolvencies to GDP.
At the basis of this lower elasticity there are institutional reasons. In Germany, for example, the legislation does not encourage companies in difficulty to file for bankruptcy, but to try the route of restructuring. On the other hand, Italy too has a relatively low historical elasticity of insolvencies to economic cycles, but for different reasons: bankruptcy procedures are lengthy and expensive, therefore most of the companies in difficulty prefer to liquidate their creditors through so-called agreements of arrangement with creditors. Among the economies in which a sharp increase in insolvencies is expected are Turkey, the USA, Hong Kong, and in Europe Portugal, the Netherlands and Spain. For all these countries, a significant economic contraction is expected to justify the sharp increase in insolvencies.
Insolvency forecasts for 2021 show for some countries an increase due to late registrations due to the temporary suspension of judicial proceedings. This is the case of Spain, Australia, Canada, France, Switzerland, Norway and Finland, countries that are expected to record the largest increases. For Sweden and the Netherlands, relatively weaker economic growth following the slightest contraction in 2020, coupled with the withdrawal of fiscal support packages, leads to expectations of a slight increase in insolvencies.
Among the countries with the sharpest drop in insolvencies in 2021 are those in southern Europe, including Greece, Portugal and Italy: Everyone will benefit from a relatively strong economic recovery. Athens is a special case, as it has experienced a downward trend in insolvencies in recent years due to reforms that make it easier for a company to restructure without the involvement of a bankruptcy court. Greece is also the only country projected to see a cumulative decline in insolvencies in 2019-21. Further examples come from New Zealand and the Czech Republic, which are expected to benefit from a relatively strong economic recovery over the next year. If overall all markets will see a slight drop in insolvencies in 2021, comparing the numbers with those prior to the recession, the estimates underline a higher level of risk (+25%), despite the expected moderate economic recovery.
