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Economic recovery has feet of clay

German credit insurers see further economic development threatened by an accumulation of complex risks affecting many sectors.

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© Meindert van der Haven / Getty Images

Shortages of raw materials, supply bottlenecks and rising prices threaten further economic development.

Only the immediate shock from Corona had been overcome, but not the medium- and long-term consequences of the pandemic. "Currently, risks are constantly changing and reinforcing each other: New corona waves, global supply bottlenecks and rising prices are coming up against simultaneously heavy pressure to change and innovate", says Thomas Langen, Chairman of the Credit Insurance Commission at the German Insurance Association (GDV).

More and larger insolvencies expected

Credit insurers therefore expect an upturn in corporate bankruptcies in 2022. "In the coming year, the number of insolvencies will increase for the first time since 2009. In the best case, we expect 15,500 bankruptcies, in the worst case up to 17,000", says Langen.

At the same time, insolvencies could lead to higher losses. "Receivables from insolvency were over 4 million EUR in the first half of 2021 - twice as high as in the same period last year", Langen said. The comparatively low figure of 15,000 corporate insolvencies in 2021 would therefore not adequately reflect the economic damage.

Credit insurers see particular risks for the automotive sector. The continuing shortage of microchips is causing suppliers to lose billions of euros in sales, he said, while at the same time structural change is requiring high levels of investment. In addition, the risk of cybercrime has increased in almost all industries, as many companies have inadequately secured mobile work.

At 458 billion EUR, the coverage volume is higher than before the pandemic

Insurers are taking positive stock of the umbrella protection scheme for German industry supply chains, which expired in the middle of the year. In return for a guarantee from the federal government, credit insurers had consistently maintained their coverage commitments of over 400 billion EUR despite the pandemic-related increase in risks.

"Credit insurers have thus made a significant contribution to overcoming this crisis and strengthened confidence in economic stability", says GDV CEO Jörg Asmussen. At the same time, the development of coverage amounts shows that the return to insurance coverage on a strictly market-based basis was the right decision.

Currently, trade credit insurers are securing supplier credits totaling 458 billion EUR, 5 per cent more than in the previous year and around 35 billion EUR more than at the start of the pandemic.

Credit insurance offers protection against payment defaults

Trade credit or del credere insurance protects suppliers in the event a customer in Germany or abroad is unable or unwilling to pay the invoice. If there are bad debts or longer-term delays in payment, the invoice is settled by the credit insurer. According to GDV estimates, credit insurers cover around 15 per cent of German exports and thus make a significant contribution to the security of the German export industry.

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