A new trade report from Atradius has predicted a rise in insolvencies from the Czech Republic.
In the report, Atradius economists detail how GDP contracted by 2% year on year in Q1 of 2020 and by 11% in Q2. Overall in 2020, the economy is forecast to decline by 6% with industrial production and exports recording double-digit contraction rates of 10.6% and 12% respectively. The Czech economy is highly integrated into international value chains and at almost 70%, the export-to-GDP ratio is one of the highest in the EU, making it highly vulnerable to major foreign trade losses. Meanwhile, rising unemployment and adverse sentiment are affecting private consumption which is forecast to contract by 4% in 2020.
The global and domestic economic downturn has affected the Czech Republic’s major sectors which Atradius forecasts are likely to see a rise in insolvencies. The Czech automotive industry has seen globally deteriorating sales, leading to liquidity strains and cash shortfalls, while the construction industry is equally impacted by the postponement of projects and reduced order volumes, increasing credit risk mainly for smaller players. Deteriorated demand from these sectors has had a knock-on impact on the machinery and steel industries as well as on metals producers and wholesalers. Meanwhile, the service sector has suffered heavily from lockdown measures.
While rebound is forecast for GDP, private consumption, exports and imports, the renewed risk posed by the coronavirus creates uncertainty with the government again declaring a state of emergency in early October accompanied by additional tightening measures.
Atradius also reports on the renewed risk from Covid-19 to economic rebound in Greece. Economists forecast an economic contraction of 7% in 2020 with private consumption and investments expected to decrease by 7% and 10% respectively. Exports are forecast to shrink 9.5% this year while tourism, which accounts for almost 27% of Greece’s GDP, decreased 99% year-on-year in April and May.
Assuming the pandemic comes to a gradual end, a robust recovery should lead to an economic rebound of almost 7.5% in 2021. Positively, the Greek government is taking action to improve international competitiveness with measures announced to cut red tape and tackle issues. However, the unknown path of the coronavirus as well as the threat of a deterioration of relations with Turkey pose downside risks.
Tanya Giles, Head of SME business at Atradius UK, said “The impact of the coronavirus around the world has been indiscriminate. Almost every market faces the struggles of economic decline and an increased risk of insolvency. While the expectation is for recovery, the ongoing uncertainty clouds the path ahead which makes the risk of doing business even more acute. The key to managing this risk is accurate, real-time information on the market you’re doing business with, analysing the impact on your buyers and ensuring an agile response. Evolving to face these risks head on will be imperative to futureproof your business no matter what the future holds.”