Global business insolvencies are expected to rise +21% in 2023 and +4% in 2024, after a small rebound by +2% in 2022 after two years of decline due to the pandemic, according to Allianz Trade.
The trade credit insurer noted global business insolvencies might stay -5% below their pre-pandemic levels in 2023 and -1% in 2024.
“The rebound in business insolvencies is globally picking up speed: Allianz Trade’s Global Insolvency Index is set to continue rising in the next couple of years. Yet, this significant jump might not be sufficient for insolvencies to reach their 2019 levels,” according to Allianz Trade.
Allianz Trade expects that “half of the countries in its panel are likely to see insolvencies exceed their pre-pandemic levels in 2023, and 3 out of 5 in 2024. In a nutshell, most countries are likely to exceed their 2019 levels by the end of 2024.”
According to Maxime Lemerle, lead analyst for Insolvency Research at Allianz Trade, France will see insolvencies reach (+41%) in 2023, the UK (+16%), Germany (+22%) and Italy (+24%).
Lemerle noted that in the US, it expects an increase of (+49%) in business insolvencies in 2023 as a result of tighter credit conditions and an expected sharp economic slowdown.
“We calculate that the Eurozone and the US would need an additional GDP growth of 1.3pp and 1.5pp respectively in 2023-2024 for the level of insolvencies to stabilize. Additionally, companies will have to watch out for domino effects: the number of insolvencies for companies with more than EUR50mn in revenue is now slightly above pre-pandemic levels. Construction, retail and services are the most affected sectors,” Lemerle added.
Insolvencies in Asia Pacific are expected to rise +12% in 2023 and +5% in 2024, Allianz Trade noted.
While in Asia, China should see a moderate increase (+4%) in 2023 and (+5%) in 2024 as the reopening of lockdowns has not eliminated all risks, notably in the real estate and construction sectors, the insurer explained.
Allianz Trade expects the other countries in the region to see more insolvencies due to the downside factors affecting the region like elevated interest rates and inflation, notably Australia (+15%) in 2023, Japan (+12%) in 2023 and India (+36%) in 2023.
Paul Flanagan, Regional CEO of Allianz Trade in Asia Pacific, said: “While Asia and Latin America are the only two regions not seeing their insolvencies back to 2019 levels by 2024, the spillover of financial stability concerns has increased corporate risks while demand is likely to remain well below the minimum required to at least keep insolvencies in check.”
“We expect the most fragile sectors and companies will be hit the hardest, such as those most exposed to the global slowdown; those benefitting less from China’s earlier-than-expected reopening; those in labor-intensive sectors and most exposed to recovery in wages; and those most exposed to rising interest rates,” Flanagan noted.
