Impending economic crisis will dwarf coronavirus crisis, says credit insurer Allianz
The looming economic crisis will make the coronavirus crisis look like nothing, according to credit insurer Allianz Trade. “It is an atypical, multiple crisis. Everything points downwards. Rarely have so many negative facts come together simultaneously,” Johan Geeroms, director of risk underwriting in the Benelux for Allianz, said in a press statement.
“One figure is more serious than the other,” Geeroms said. Bankruptcies are expected to skyrocket this and next year, inflation is at historically high rates, interest rates are rising, and raw material costs are getting more and more expensive. And, partly due to the 10 percent increase in the minimum wage the government announced for next year, companies also face skyrocketing wage costs.
“Companies are dealing with an unprecedented increase in input costs that are dozens of percent higher,” Geeroms said. And that is causing a domino effect. As companies’ margins face more and more pressure, they’re paying their bills later in order to keep their day-to-day running. That, in turn, is putting other companies in trouble because their customers aren’t paying their bills.
Last week, the government announced an extensive support package for small and medium-sized enterprises (SMEs). “That cannot go on indefinitely,” Geeroms said, pointing out that the Cabinet just ended its gigantic coronavirus support packages earlier this year. He expects that there will eventually be political unrest in the Netherlands and Europe as a whole about budget deficits and sustainability targets.
“What we are going to see is that the available fiscal space of countries is completely exhausted. Budgets derail. Especially at a time when a lot of money is also needed for the energy translation and climate measures. It is almost inevitable that sustainability will fade into the background in the near future,” Geeroms said.
The Allianz director doesn’t expect the situation to change any time soon. ”As long as Russia continues and as long as corona remains lurking, uncertainty will remain.”