Estimating how long it will take to recover from a pandemic: a wave of bankruptcies will return next year

Coface forecasts that the slowest recovery in Europe is expected in Spain and Italy, where next year’s GDP will remain at 7% and 5.5% respectively. lower than in 2019. In the fight against Covid-19, the governments of different countries have taken different measures, often with massive protests from the population. This will increase the impact of political and social risks on the economic situation in the coming years.

Mantvydas Štareika, CEO of Coface Baltics, highlights that the traditional quarterly macroeconomic forecasts are already being prepared in the second quarter under conditions of high uncertainty, due to the challenges of the pandemic and pending development of the vaccine. In such a situation, both companies and residents have suspended their investments.

“At present, the Lithuanian people can only take comfort in the fact that the economy of our country has contracted less than all the countries of the EU, less than 1%, while large countries like Spain, Italy and France have fallen more than 11% “. M. Štareika points out. “We expect Lithuania’s recovery period to be shorter than the average forecast for other EU countries.”

However, the recovery will be very different in different countries around the world, predicts Coface: At least half of the 20 countries most likely to recover will be Asian countries, including China and Vietnam. And of the 15 countries with the slowest recovery with GDP in 2021, it will still be at least 7 percent. lower than in 2019, at least 7 countries are in Latin America. The slower growing economies also include South Africa and Nigeria.

By compiling the Political Risk Index, Coface identifies two trends: Although fewer global conflicts are forecast in the near future, social tensions will increase in some countries, such as Iran and Turkey, potentially leading people to rebel against current governments. . Brazil, Mexico, Peru, Colombia, and South Africa are among the countries where political and social risks can peak.

14 percent reduction in working hours in the world is equivalent to 400 million. Job losses
In assessing the effects of the pandemic closures, Coface estimates that the number of hours worked worldwide has dropped by 14%. – This is 400 million. equivalent work. Even more, even 18 percent. – Working hours have been decreasing in North America and Latin America. When part of the population continued to work from home, the greatest difficulties were experienced by the less qualified workers, whose nature of activity did not allow them to work remotely. In many cases, it is they who have lost their jobs and their main source of livelihood.

The situation of employees of commercial companies was further aggravated by the sharp increase in consumer caution.

Most residents, fearing job loss, saving money, and unwilling to take risks when visiting public places, have severely limited their normal spending. For example, even after the quarantine was lifted in euro area countries, restaurant visits remained at 30%. lower than before the pandemic, and city-to-city travel was 20 percent. less than earlier this year.

Forecast: A halted wave of bankruptcies will return next year, increasing by one-third worldwide

Although national governments have made significant efforts to stem the wave of bankruptcies during the pandemic, Coface expects insolvencies to increase 22% this year and next in Europe compared to 2019 and 29% in the Asia-Pacific region. and in North America, 41 percent. Bankruptcies are lower than the world average (32%) in Taiwan (1%), South Africa (2%), Canada (5%), South Korea (9%), Denmark and Germany (11%), Spain, France and Singapore (16% each), Finland, Sweden, Belgium (18-20%), Iceland (21%), Norway (23%), New Zealand (28%), the Netherlands and Japan (30% each ). More insolvency cases are expected in the UK (33%), Brazil (35%), Portugal (39%), the US and Poland (44% each), Turkey (48%) and Australia (50%). and Hong Kong (up 78 percent).

The difficulties caused by the economic losses are compounded by the discontent of the population with the handling of the pandemic and the political and social risks that it entails. Only a small group of countries (Finland, Denmark, Australia, Norway, Canada and Germany) expressed more than 70% support for the government’s action. population. In this context, the opinions of the citizens of the United Kingdom, Spain, the United States, France and Sweden seem especially contrasting: in these countries, less than half the population believes that their governments have acted correctly. Of these countries, the UK is the least satisfied with the actions of its government – only 30%.

The highest degree of risk in Central and Eastern Europe is for the production and transport of automobiles.
According to Coface forecasts, the only industry in Central and Eastern Europe (CEE) has been assigned a low risk index of A2 this year, given the current economic situation, the unresolved pandemic and emerging political and social threats. None of the world’s industries received the most favorable A1 rating (very low risk). The moderate risk grade A4 is for the agricultural, energy, ICT, commercial, chemical and paper industries, and the highest risk grade E (extreme) is for two sectors: automotive and transportation.

Germany signal: requires shorter payment terms

According to M. Štareika, Lithuanian exporters will have to adapt to the strictest conditions of establishment with one of the main trading partners – Germany.

“A recent survey of German companies has shown that now only 62% use deferral. Companies, compared to 81 percent. In 2019. Up to half of the companies surveyed indicated that they currently require payments to be made in a period from 0 to 30 days. Payment terms have changed unevenly, with the pharmaceutical sector shortening by almost a week to an average of 27 days, while the automotive industry, by contrast, has increased by 20 days “, says the CEO of Coface Baltics.

He also notes that even the ICT sector, which has clearly seen a rebound during quarantine, has extended payment deferrals by 2 weeks.