However, a possible end to the recession through monetary policy measures and high expectations in the future should not be confused with the current crisis being overcome. It will still be some time before economic output returns to its precrisis level. This situation poses the risk of a possible rise in corporate insolvencies from autumn.
A study by S&P reaches the conclusion that the default rates of loans with poor creditworthiness are set in a baseline scenario to more than double to 8.5% in the next twelve months. The sectors most at risk from loan defaults are leisure, travel, energy, aviation and the automobile industry.
The way remains uneven
It is not anticipated at present that the expected loan defaults will result in a further European banking crisis. However, what is undisputed is that the earnings situation for banks will deteriorate in the current environment, which is set to accelerate further the market consolidation process brought about by digitalisation. In order to secure long-term competitiveness and increase profitability again, financial institutions will need to take swift strategic action. Radical measures are therefore also unavoidable in the financial sector.
Economic perspectives: The way remains uneven
Article written on 1 October 2020
Since the market slump in February, the financial markets have made a V-shaped recovery. This development stems from the expectation of a significant economic upturn in the second half of the year.
