Covid-19 creates a domino effect
Since the outbreak of Covid-19 at the end of last year, many sectors worldwide are facing mounting challenges. It all started with China’s drastic containment measures. The lockdown of several cities immediately had an economic impact. Gradually similar measures followed in other countries worldwide, in particular in Europe and North America. Today not only production and trade are decreased, demand and local consumption as well. Hardly any industry is spared from the impact of the coronavirus.
It is raining downgrades
In Q1 2020, a record level of 126 downgrades of Euler Hermes sector risk-ratings were registered. All these downgrades come from the direct and indirect impacts of Covid-19 on demand, profitability and liquidity. In 6 out of 10 cases, downgrades are from medium risk to sensitive.
Overall Western Europe and Asia are the hardest hit. The bulk of downgrades occurred in Western Europe (52), whereof six in Belgium. Asia (29) and Central and Eastern Europe (14) are also impacted. North America is not immune as well with three downgrades.
Transportation, automotive, electronics and retail under heavily pressure
The lockdown of one third of world population is wreaking havoc on air transport. Since December RPK (Revenue Passenger Kilometres) for top air carriers plummeted. Collapsing stock prices are also jeopardizing indebted and unprofitable airlines. Possibly public support will be given.
In the automotive sector, which was already struggling with existing structural challenges, this crisis is exacerbating problems. The global market is facing a slump of over -10% in 2020, after -4% in 2019.
The electronics sector is battling a demand-driven deterioration in Europe, with expectations of much weaker electronics sales to local industries.
Retailers are on the front line, but suppliers are not immune, in particular to cross-country supply chain risks. Within the retail sector, Asia-Pacific (APAC) is hurt badly by prolonged store closures and the collapse of Chinese tourist flows. In addition, sales in non-food take a dive due to the lockdowns. The margins of already vulnerable companies are squeezed even more.
In energy, there is significant risk ahead for the U.S. shale and solar. Metals is already weak. Machinery faces big challenges from a fragile global backdrop in many end markets due to the weak economic environment. Finally, construction runs potential insolvency risks across Asia-Pacific, primarily in China.
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