The large scale and erratic developments of the outbreak are creating pressure on all businesses to mitigate as much risk as they can.
Cash flow is one of the key areas they will need to secure as cash is essential to businesses' survival in downturns.
Many sectors are heavily impacted
The future is uncertain, but immediate impacts on several sectors are apparent: Aviation, tourism, and hospitality have experienced a drastic drop in demand.
- Automotive has been also affected, mostly because the Wuhan area is a manufacturing centre of automotive parts and vehicles.
- Electronics has seen a disruption in its international supply chains, as the majority of electronics manufacturers are based in Asia.
- Pharmaceutical has similar problems with China being the main exporter of raw materials and vitamins for many countries.
Global insolvency may continue its upward trend
From the current outlook, global economic growth is expected to fall to its lowest levels since the financial crisis, and the number of insolvencies has increased for the first time since 2008 (2).
A prolonged outbreak will reduce demand and slow economic growth further. There is little doubt that COVID-19 will reinforce the upward trend in global insolvencies.
Based on the GDP developments in our baseline scenario, our modelling suggests that the number of global insolvencies will rise by 0.8% points this year. This increase will be even bigger in a more pessimistic scenario (3).
Source: (1) (3) Atradius Economic Research, 'Coronavirus: an unwelcome guest at a bad time', March 2020. (2) Atradius Economic Research, ' Corporate insolvency growth to accelerate in 2020', March 2020. (4) McKinsey Global Survey results, ' Economic Conditions Snapshot', March 2020. (5) McKinsey podcast, 'Stronger for longer: How top performers thrive through downturns', December 2019.
Although the challenges that COVID-19 poses are daunting, there are important moves companies can make now to ensure sufficient liquidity, build resilience, and be ready for what may come next.
We've developed 3 practical guidelines, along with accounts receivable best practices, that can help companies take their first steps towards surviving the consequences of the pandemic. Our perspectives are based on our analyses of comparable economic events and our industry expertise.