More corporate loan defaults expected

Dhe gas and electricity prices are rising to new record highs. This is associated with a serious loss of purchasing power for private households and higher costs for companies. This increases recession worries on the financial markets, which are now rating agencies called to the plan. Creditreform Rating expects the default rates of German companies to increase significantly by mid-2023. Until then, the analysts from S&P Global estimate the default rate at 3 percent in the speculative rating range, to which companies below investment grade ratings (i.e. less than “BBB-“) are assigned. At the end of June, the default rate was still 1.05 percent.

Benjamin Mohr, Head of Public Finance and Economic Research at Creditreform Rating, was quoted in the press release as saying: “Due to the current mix of geopolitical, economic and pandemic-related factors, the uncertainty regarding the future default rate of German companies has increased noticeably again. Nevertheless, the credit checkers of the German rating agency, which is currently seeking recognition from the European Central Bank (ECB) is assuming that the state support measures will once again have their stabilizing effect and at least prevent a massive increase in insolvencies.

In doing so, they refer to the third relief package promised by the federal government, after it had already launched two packages in February and April 2022. In view of the current risks and uncertainties, but also the potentially stabilizing developments, Creditreform estimates that the one-year default rate will rise to 1.45 percent by mid-2023, from 1.06 percent at the end of the second quarter of this year.

Problem child inland shipping

Creditreform considers the downside risks to the forecast to be considerable. A complete suspension of gas deliveries from Russia to Germany and/or a continuation of the climate-related difficulties for inland shipping, especially the low water level on the Rhine, could bring about a technical recession at an early stage. According to Creditreform Rating, Germany is relatively heavily dependent on Russian energy imports and is therefore significantly exposed to supply risks, particularly with regard to gas, and it will take some time to resolve this structural situation.

In addition, supply chains that are already impaired could be further intensified with a view to restrictions in inland shipping. This should lead to further production losses in important sectors such as the automotive industry, in which the transformation to electromobility is in full swing, as well as the chemical industry and the metals industry.

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