Corporate insolvencies continued to decrease in 2020, despite the sharp decline in GDP. This discrepancy is driven by temporary adjustments to insolvency laws and fiscal support packages. As support measures are phased out, global corporate insolvencies are forecast to increase by 26% in 2021.The percentage increase of insolvencies in 2021 is highest in Australia, France, Singapore and Austria, all countries that had strong government measures in place in 2020. As these measures will be gradually phased out, this will drive insolvencies up.
The widely anticipated rise of business insolvencies did not occur in 2020. Global insolvencies are estimated to have declined by 14% in 2020. This is likely to be followed by a 26% rise of insolvencies in 2021. The increase is expected to take place in all major regions and countries, except Turkey. This upward trend is not surprising, as we expect that the temporary measures that kept insolvencies unusually low in 2020 (insolvency law amendments, fiscal support) are gradually phased out in 2021. The level of bankruptcies at the end of 2021 will be higher in virtually all markets than it was in 2019.
The pace of economic recovery in 2021 varies significantly around the world
After a year of global recession, 2021 is bringing new hope as the recovery will set in. Global GDP growth is estimated at 6.0% in 2021, after a 3.7% contraction in 2020. The rollout of vaccines is underway, and positive trial results should boost vaccine availability as the year progresses. While global growth in Q1 of 2021 is likely to remain modest due to activity restrictions in order to bring Covid-19 numbers down, an acceleration of GDP
will take place in the rest of the year. However, there are still risks to this outlook, mainly linked to the evolution of the pandemic and the success of vaccination campaigns. New Covid-19 infection cases remain high in some countries, such as Brazil, France, Italy and Turkey. While vaccination has started almost everywhere in the developed world, the pace has to accelerate in order to get a substantial part of the population vaccinated by the end of Q2. In this respect Israel is ahead of other countries, already experiencing a substantial drop in new Covid-19 cases and tangible reductions in hospitalisations. The UK and the US are also doing better than average. In Europe the rollout is still slow in many countries and needs to accelerate in order to get a substantial of the population vaccinated by summer.
The pace of GDP recovery in 2021 varies significantly around the world. The eurozone
witnessed a 6.8% GDP contraction in 2020, but with a moderate 0.7% quarter-on-quarter GDP decline in Q4 it coped better than expected with re-imposed Covid-19 restrictions. While it is likely that ongoing lockdowns and the slow start of the vaccination rollout will lead to a double dip recession in Q1 of 2021, there is light at the end of the tunnel. As vaccination programmes gain momentum and the pressure on health systems subsides, containment measures are set to relax gradually. This should lead to an economic recovery as of Q2, bringing Eurozone GDP growth to 4.2% in 2021. Countries that experienced the
deepest recessions in 2020 will generally witness the strongest expansion in 2021. Several factors determine the strength of the economic recovery. First, the stringency of lockdown measures and the speed at which they can be reversed. Last year ́s lockdown measures were relatively stringent in Portugal, Italy, Spain and Ireland, which led to low consumption of services in those countries. In comparison, less stringent measures could be
found in the Netherlands, Austria and Finland (although in the Netherlands measures were tightened considerably towards the end of 2020). The reversal of containment measures will cause a ‘technical recovery’ in 2021. Countries like Spain, France and Italy can expect relatively high economic growth figures in 2021, while the rebound in the Netherlands and Austria will be lower.
Second, the sectoral composition is also affecting the strength of GDP growth. Due to the importance of tourism for their economies, Portugal, Spain, Greece, Italy and France recorded a strong negative impact on GDP in 2020. As restrictions on tourism and travel are gradually lifted, demand for those services will increase, helping the recovery in
those countries. However, tourism flows will not fully recover in 2021, as some people will refrain from travelling to limit health risks. Additionally governments could be reluctant in opening their borders, given that the pace of vaccination differs per country.
The United Kingdom experienced a deep recession in 2020 (-9.9% GDP) due to strict lockdown measures and Brexit uncertainty. In January 2021 British government imposed a third nationwide lockdown in response to the steep rise in Covid-19 cases associated with the more transmissible variant of the virus. This has placed the economy on a weak footing at the beginning of 2021. The good news is that the UK and the EU finally agreed on a free-trade agreement, limiting the cost of exiting the common market compared to a no-deal. In 2021 we forecast the UK economy to expand 5.9%, which covers only about half of the GDP losses from the pandemic. We expect a meaningful relaxation of lockdown measures as of Q2, as the vaccination programme is well underway.
Outside of Europe, the United States is expecting a strong economic recovery of 7.0% in 2021, a 3 percentage point upward revision compared to our September 2020 insolvency forecast report. The 7.0% growth rate will more than compensate the economic losses seen in 2020. President Joe Biden recently signed a major fiscal stimulus package, the American Rescue Plan, which amounts to USD 1.9 trillion (8.3% of the total US economy).
Moreover, at the current pace of vaccination rollout the US will reach herd immunity (70% of the adult population inoculated) by early summer. This will ease virus fears and allow for a relaxation of activity restrictions, supporting the economic recovery.
Australia ranks among the best performing developed countries, having the virus effectively under control. Perth’s five-day lockdown in January in response to the detection of one case demonstrates the government’s responsiveness. Australia recorded a relatively mild recession (-2.4%) in 2020, likely to be followed by a 3.5% GDP expansion in 2021.
Japan experienced a 4.9% GDP contraction in 2020, likely to be followed by a partial recovery of 2.7% in 2021.