Insolvencies Increase As Government Support Ends

Companies restructuring Image from page 185 of "Thackerayana;" (1875)

Crédito y Caución (Atradius) | Global GDP growth is expected to slow in 2022, as price pressures are rising due to supply chaindisruptions, strong consumer demand and the Russia-Ukraine conflict. In some markets, we already saw a partial return to normality in 2021 in insolvency developments. Forinstance, in Spain, Italy and Czech Republic, insolvencies started to rise in 2021 after they declined in 2020. For the majority of markets, however, the adjustment is expected to take place in 2022 and 2023. For theseyears, we expect insolvencies to rise in most markets as government support is phased out.

In 2022, we expect the global economy to gradually emerge from the Covid pandemic, with restrictions unwound in most countries and regions. However, in economic growth terms we see that most gains from reopening economies have already been exploited. Moreover, supply chain bottlenecks, rising consumer demand and the war in Ukraine will weigh on growth as they increase price pressures. We do, however, expect that the global economy will remain a long way from recession territory. This is because Russia and Ukraine in themselves are not large enough economies to influence global growth (they represent less than 2% of global GDP). The main effect on global growth will be via higher commodities prices. We estimate global inflation in 2022 to be 6.1%. This is having a negative impact on consumers’ purchasing power and on global GDP growth, which is expected to moderate to 3.4% in 2022, compared to 5.9% in 2021.

Emerging markets as a group are forecast to grow by 3.7% in 2022, compared to 6.9% in 2021. Vaccinations will become more widely available this year, which could help output growth and improve consumer confidence. Many emerging markets are likely to turn to a less supportive monetary and fiscal policy in 2022. Central banks of some large EMEs such as Brazil, Russia and Mexico, have already taken several interest rate hikes in response to higher inflation. As fiscal and monetary support will be scaled down, this is having a moderating effect on growth. In 2022, Emerging Asia remains the fastest growing region (5.2%). In China, growth moderates to 4.8% in 2022, with constraints coming from the ailing property sector and occasional tight restrictions to fight Covid outbreaks. In Eastern Europe, Russia’s economy will enter a deep recession this year (-10.9%), due to harsh sanctions imposed by Western countries. Turkey’s economy is also facing a strong growth slowdown as it continues to struggle with high inflation coming from commodity prices, supply chain disruptions and geopolitical uncertainty.

Growth in the advanced economies is projected to slide to 3.1%. GDP growth in the United States is expected to moderate in 2022 due to supply chain issues and a lower fiscal impulse. Eurozone GDP growth is forecast to moderate significantly in 2022 due to supply chain disruptions and the war in Ukraine. The eurozone feels a relatively high share of the economic pain caused by the conflict between Russia and Ukraine, as it is closely linked to Russia via energy. In our baseline, we assume that the conflict will be confined to 2023 and there will be no major disruptions to oil and gas supplies to the eurozone. Worse scenarios are possible, that would further lower GDP growth in the eurozone. While fiscal support will weaken in 2022 compared to 2021, the fiscal position continues to be expansionary in most advanced markets. Central banks are meanwhile starting to tighten monetary policy. The US Federal Reserve moved ahead with a 25 basis points rate hike in March, while the Bank of England has already implemented several rate hikes. The ECB is scaling down its asset purchasing programme, while a rate hike may likely happen in Q4 of 2022. Overall, however, financial conditions for companies remain supportive…

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.