The winding down of government support measures that held up the global economy during the worst of the Covid-19 pandemic is set to result in a surge i­n insolvencies, according to Atradius.

In its latest insolvency forecast report, the trade credit insurer predicts a 132% total year-on-year increase in insolvencies across the 30 markets its research covers, from 1,871 insolvencies in 2021 to 2,483 in 2022.

“As we emerge from the pandemic and economies start to bounce back, we will enter a global period of adjustment. That’s what we’re starting to see now,” says Nicola Harris, senior underwriter at Atradius. “The amount of government support that was available to help businesses through the pandemic surpassed anything we’d ever seen.”

In early 2020, as lockdowns and movement restrictions were implemented to stem the spread of the virus, governments around the world leapt into action with numerous financial support facilities. In the UK for example, the government introduced so-called bounce back loans, which allowed businesses to borrow up to 25% of their turnover, capped at £50,000, with a fixed 2.5% interest rate that was paid by the government in the first year. This was accompanied by the Coronavirus Business Interruption Loan scheme, which allowed companies with a turnover of under £45mn to apply for a loan that was 80% backed by the government.

“One of the results of this support was a strong decline in insolvencies – globally, they fell by a cumulative 29% in 2020-21,” says Harris. “Those government measures didn’t just protect viable businesses, but also helped to create ‘zombie companies’ – businesses we would have expected to default during pre-pandemic times, but that have been able to keep going for longer thanks to the support they’ve received. In many ways, the rise in insolvencies we’re expecting to see this year is a part of the return to normal.”

A closer look at the figures reveals just how much this government support held back the tide of insolvencies. In some markets, including Spain, Italy and the Czech Republic, a partial return to normality in 2021 resulted in an earlier rise in insolvency. For this year, Spain is set to see a year-on-year decrease in insolvencies of 1%, while Italy and the Czech Republic will see increases of 28% and 5% respectively. For the majority of markets, however, Atradius expects the adjustment to take place in 2022 and 2023 with insolvencies rising in line with the phased end of government support. The Netherlands, for example, is expected to see a 101% jump in insolvencies in 2022, while the UK and US will see increases of 60% and 70% respectively.

The withdrawal of government backing for businesses is not the only factor stressing businesses in the coming year, however. The increase in commodity prices and difficult trading environment as a result of the Russian invasion of Ukraine has caused dramatic disruption to the food, energy and finance markets, with the UN’s Global Crisis Response Group cautioning last week that the world economy is “on the verge of crisis”.

“We’re expecting to see a significant increase in insolvencies in Russia in 2022, in part due to the economic recession as a result of sanctions that have been imposed in response to the war in Ukraine,” says Harris. “The eurozone is heavily reliant on Russia for energy, so European countries are likely to be some of the worst impacted by the conflict and a resulting increase in energy prices.”

However, for the time being at least, Atradius is sanguine about the longer-term outlook for company insolvencies. “Beyond 2023, we expect that insolvency levels will have largely returned to normal. As a result, we’ll either see them start to decline or remain constant,” says Harris.