- Global trade is not expected to return to pre-crisis levels before 2023
- Global economy to shrink by -4.7% this year, with growth of +4.8% in 2021
- UK GDP to fall by -13.3% in 2020, before a modest +5% rebound in 2021
- UK insolvencies to surge by +43% by 2021, and by +35% globally
- Zombies to eat into the global recovery for years to come
LONDON, 16 JULY 2020 – Business insolvencies in the UK are set to rise by more than +43%, ahead of the global trend of +35%, as the impact of COVID-19 hits Britain harder than other developed economies, according to Euler Hermes.
Global GDP growth is only likely to return to pre-crisis levels at the end of 2021, and worldwide trade will not to return to pre-crisis levels before 2023. However, managing the risks of a second wave will be crucial in determining the size of the shock and speed of recovery.
Alexis Garatti, global head of macroeconomic research at Euler Hermes, said: “Recovery will take place in at different speeds in different countries and markets and is largely dependent how governments are managing fiscal and monetary support. The key question remains how much more support is needed until the end of the year. With increased solvency risks emerging everywhere, we expect global insolvencies to increase by +35% in the next year.”
Global trade will contract by -15% in volume in 2020, with a recovery of +8% in 2021 and +4.1% in 2022. Export losses (USD4.5 trillion in 2020) will also reveal large asymmetries between countries and sectors. Germany, the Netherlands, Switzerland and Austria are forecast to recover faster, while Japan, the U.S., Spain, the UK and Italy are likely to need even more fiscal stimulus to support them into recovery.
The fallout from COVID-19 will prompt a wave of business failures in the UK, creating a spike in insolvencies of more than +40% in the next 12 months. The UK economy will shrink by -13.3% this year, followed by a modest +5% rebound in GDP in 2021. Brexit uncertainty is also set to weigh on the country in the second half of 2020 and early in 2021.
Milo Bogaerts, CEO, Euler Hermes UK & Ireland, said: “The UK is amongst the countries with the longest and harshest lockdowns in Europe. The economy is taking time to get back up and running and we are already seeing an increase in claims notifications, foretelling the pain that is still to come for many sectors and businesses. More than ever the government and the private sector must work together to support the return to growth and create the trust to trade.”
Worldwide, service sectors such as energy, travel, and transport are among the hardest hit and will take longer to recover than the trade in physical goods. Emerging markets will also take longer to recover than developed markets, and those that engaged in fiscal stimulus programmes to protect against capital outflows in March may face destabilization of their sovereign bond markets in the future.
In the medium term, GDP growth will be impaired by the legacies of the crisis. An accelerating ‘zombification’ of corporates, banks and labour markets dependant on support schemes, a deterioration of social and political risk and definitive losses in terms of capacities of production will prove a drag on a recovery.
The forecasts are included in Coping with COVID-19 in Differing Ways, a macroeconomic report from Euler Hermes that tracks the fortunes of global growth and trade in the wake of Covid-19, and in its latest insolvency report: Calm before the storm Covid19 and the business insolvency time bomb.