Insolvency may hit 2,200 companies in Brazil this year and increase in 2022

RIO DE JANEIRO, BRAZIL – In 2019, the number of insolvent companies in Brazil reached 2,887, dropping 28% to 2,078 last year. But this year the figure is expected to rise to 2,200 and jump to 2,900 next year.

Euler Hermes’ Head of Insolvency Research Maxime Lemerle notes that Brazil has so far failed to reverse the upward trend in insolvencies through 2021, but instead registered stabilization at a low level.

He notes that despite highly volatile monthly figures, corporate insolvencies reached 1,318 cases from January through August this year compared to 1,391 in the same period in 2020. That is, a narrow difference (-5%). Concurrently, there was a relevant drop compared to pre-Covid levels (-28% in 2019 and -30% in 2018).

“Nevertheless, we expect a moderate increase by the end of the year, which will push the annual result to 2,200 cases, and a more notable increase in 2022, bringing the number of cases to 2,900.”

Global insolvencies are on the rise, but still at a lower level than in 2019. According to Euler Hermes, this is due to the extension of many government support measures and generally accommodative monetary policy, which helped manage the pressure on corporate liquidity and solvency.

“Massive state intervention prevented 1 in 2 insolvencies in Western Europe and 1 in 3 in the U.S. in 2020. Its extension will maintain insolvencies at a low level in 2021, but what happens next depends on how governments act in the coming months,” Lemerle says.

As support measures related to the Covid-19 pandemic are withdrawn, there will be a return to the normal insolvency level. But the trajectory will be asymmetric, as evidenced by the multi-speed economic recovery, and also gradual “due to the delicate but pragmatic phasing.”

For Euler Hermes, 5 indicators will define how insolvencies may evolve in the coming months on a global basis. First, the overall dynamic of the economic recovery, which will be decisive for the pace of withdrawal of state support measures, and in turn will impact the pace of normalization of corporate insolvency.

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