Bankruptcies are a prominent offshoot of any economic crisis. Covid-19 induced economic crisis forced the governments and central banks to take unprecedented steps to arrest its impact. Unfortunately, in hindsight it became evident that the governments and central banks went overboard in their response and took steps beyond their means. Once the situation somewhat normalized, these steps led to an entirely new set of economic issues, for example rising inflation and interest rate.
Our analysis of post pandemic data indicate that the bankruptcies unfolded in three stages in this era:
- Extinction of the weakest (2020) – The already weak companies couldn’t sustain the onslaught of economic crisis triggered by Covid-19
- Dancing on steroids (2021–22) – Most of the companies, including those with unsustainable business models, enjoyed the breath of fresh air due to easy monetary policy of central banks in many countries, particularly in US. As a result, the bankruptcies ebbed for a while
- After the quiet comes the storm (2023) – The central banks rolled back the easy monetary policy stance to deal with rising inflation. As not all corporates could adjust equally, restructuring or bankruptcies have become commonplace and are expected to continue in the near term
