Coface are predicting an increased growth in GDP worldwide of 11%, up 5.6% on previous forecasts. This is due mainly to better than expected results from the US economy. They foresee a two-speed world with areas where they vaccine is being rolled out such as US and Europe doing significantly better than other regions. Meanwhile infection rates have been increasing in several Latin American and Asian countries as well as Africa and Russia. Increases in commodity prices and inflation are seen as threats to the recovery. In the electronics sector a shortage of components could also slow the recovery in the automotive, electronics and household equipment sectors.
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Atradius have published a report examining the impact of COVID-19 and Brexit on UK Trade. In the year to March 2021 UK international trade fell by 14.3% which is largely due to the pandemic. The impact on trade with the EU has been greater than the rest of the world. For example, UK-EU trade is 18.9% lower in the year to March 2021 compared to 2018, and for UK-Non-EU trade 9.1% lower than 2018.
The sectors in which the decline in exports has been the greatest are Fuel, Machinery & Transport Equipment and Manufacturing.
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Fiona O’Brien Senior Credit Underwriter at Tokio Marine HCC has published an update on the state of the retail sector.
In 2020 the Government closure of non-essential shops accelerated the switch from spending in-store to on-line. This has led to retailers reducing their reliance on expensive stores for example H&M are set to close 250 stores and GAP are closing all UK stores and moving the brand on-line. Retailers have had to cut costs, and in some cases have not been able to meet loan re-payments or pay rents on-time.
Tokio Marine see some signs for optimism in the second half of 2021 going forward. With the successful rollout of the vaccination programme and a more normal lifestyle returning, consumer confidence will return. The businesses who have survived should emerge stronger and more agile. It is possible that a move towards shorter more localised supply chains will provide more opportunities.
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WRW Construction based in Llanelli with a turnover of £64.2m in 2019 and employing 143 people has gone into Administration. Their projects included a £22m, 20-storey Premier Inn hotel in Cardiff. In March 2019 they received significant funding from alternative funders Thincats.
The company released a statement "Despite a significant order book of over £60m to be delivered within the upcoming 12 months, a supportive lender, fantastic staff and prospects, regrettably, owing to a series of events the last week, including an unfavourable adjudication outcome, the business was put under significant financial stress,".
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According to EY-Parthenon’s profit warning report 64 UK companies issued their third profit warning in the 12 months since March 2020. None of these companies had entered into Administration but EY-Parthenon would normally expect 15% to 20% to do so within 12 months of the third warning. 38 of these companies used the Government furlough scheme and 24 used at least one other form of Government support. EY-Parthenon estimate that an additional 6,000 companies would have entered into insolvency if trends had continued without Government support and a moratorium on winding-up petitions. With Government support measures due to end insolvencies are likely to increase.
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There were 3,116 (seasonally adjusted) company insolvencies in England and Wales during the second quarter of 2021. This was an increase of 31% from the previous quarter and an increase of 4% compared to the same period last year. Overall numbers remain low compared with pre-pandemic levels and this is likely to be due, in part to Government measures put in place in response to COVID-19.
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