Corporate insolvencies are forecast to increase in 2019 for the first time since the global crisis.
Escalating trade tensions between the US and China may push the increase above the 2% that Atradius forecasts in its May Economic Outlook.
Effective policymaking helped stabilise the world economy after a tumultuous start of the year, thanks to three key developments. The Federal Reserve adopted a more dovish stance by pausing its monetary tightening, China took steps to stimulate its economy, and a truce in the trade war between the US and China offered optimism for a potential deal. Atradius does not see this relief extending to world trade or corporate insolvencies.
“The rate of global trade growth has halved in the past year and the downward trend in insolvencies since the crisis has already turned,” states John Lorié, chief economist at Atradius. “Continued uncertainty, especially about trade policy, continues to pressure both trade growth and insolvencies. Firms are postponing investment decisions, impacting smaller enterprises down the supply chain.”
Last week, the temporary US-China truce came to an abrupt end, bringing uncertainty back to centre stage. The US announced an increase in tariffs on USD 200 billion of Chinese imports to 25% and is considering 25% tariffs on virtually all remaining imports. China has responded in kind by raising tariffs to 25% on USD 60 billion of imports from the US. Lower retaliatory tariffs from China are out of necessity since it imports less from the US, but may also show some willingness to negotiate.
“Escalation of the US-China trade war is bad news all around for the global economy, cementing its place as the number one risk to our global outlook,” states Lorié. “With a potential meeting between President Xi and President Trump at the G20 summit next month, there is still hope that a deal may be reached but the longer period of elevated uncertainty is already slowing global trade and raising corporate insolvencies.”
Read more about the global economic environment and gain insight into prospects and risks across all regions in the May Atradius Economic Outlook