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Insolvencies already above pre-pandemic levels in most advanced economies

After two gradual rebounds in 2022 (+1%) and 2023 (+7%), global insolvencies are set to accelerate again in 2024 (+9%) before stabilizing in 2025 (0%) at high levels, according to the latest Global Insolvency Report from Allianz Trade.

As expected, 2023 recorded a high-speed and broad-based rebound in business insolvencies and 2024 started with insolvencies above pre-pandemic levels in most advanced economies. The number of business insolvencies rebounded in three out of four countries in 2023, with most recording a double-digit increase. We saw sharp rises in the US (+40% in 2023) and in the Eurozone (+14%), with the Netherlands (+52%), France (+35%) and Germany (+23%) on the front lines.

“The increase in global insolvencies accelerated by +6 percentage points [pps] in 2023 compared to 2022, moderated only by the declines seen in China (-14%) and emerging markets such as South Africa (-13%) and India (-8%),” said Maxime Lemerle, Lead Analyst for insolvency research at Allianz Trade. “Western Europe remained a key contributor to the global rise in business insolvencies despite a slight slowdown (+15% in 2023, -8 pps vs 2022). North America boosted the global rebound too, with a sharp acceleration (+41%, +43 pps). Another worrying factor is the rise in large business insolvencies, which could generate further non-payment risk for smaller suppliers: 2023 recorded one case per day globally (365).” 

Global insolvency acceleration isn’t done, but the catch-up is coming to an end

Lower growth, trade disruptions and geopolitical uncertainty set the stage for another acceleration in global business insolvencies in 2024. Allianz Trade expects a third escalation in a row this year (+9%), fuelled by a continuing increase in four out of five countries. The largest increases are expected in the US (+28%), Spain (+28%) and the Netherlands (+31%).

“This broad-based rise would push two out of three countries above their pre-pandemic number of insolvencies in 2024, from half in 2023,” added Aylin Somersan Coqui, CEO of Allianz Trade. “The after-shocks economy brings a large set of headwinds and challenges. These will now test the resilience of corporates that have become the most fragile over the past 3 years. We expect that these developments will lead business insolvencies to settle at a high level in 2025: +12% above their 2019 level in the US, +8% in France and +6% in Germany.”

Allianz Trade does not expect a tsunami of business insolvencies as recorded in the aftermath of the great financial crisis, when global insolvencies skyrocketed by +17% and +19% in 2008 and 2009, respectively. However, the catch-up should be noticeable in several countries, in particular the advanced economies of Europe, due to specific firms (the most exposed to profitability and financing issues) and specific sectors (notably B2C related sectors and construction).

Reality checks for companies in the years to come

In the report, Allianz Trade also identified the following five reality checks for companies in the years to come:

1. A profitability squeeze is looming. Before benefiting from the global recovery in sight for 2025, firms will have to manage the deceleration in global demand. In several countries, the level of activity is unlikely to reach the minimum required to at least stabilise the number of insolvencies. According to Allianz Trade, the Eurozone and the US would both need +0.7pp in additional GDP growth on average in 2024-2025 to stabilize their number of insolvencies.

2. Uncertainty is on the rise, from geopolitics to rising non-payment risk. After a series of shocks in recent years, the packed election calendar in 2024 will add to economic uncertainty as countries that account for 60% of global GDP head to the polls. This context will add a layer of complexity and risk to business operations, by making it challenging for firms to make accurate forecasts and business plans, and creating volatility in input costs. Moreover, regulation is also on the rise, which may force firms to make costly additional efforts to comply. Our non-payment risk score based on our proprietary credit exposure reveals that firms are getting more and more concerned by non-payment, with the index being at its highest level since 2022.

3. Financing and liquidity conditions are still tight. Firms will continue to face costly financing, maintaining concerns on their capability to absorb the costs of borrowing and mitigate the pressure on overall profitability. At the same time, the limited availability of financing will put the most exposed sectors and firms at risk while the number of fragile firms remains noticeable in the UK (15%), France (14%), Italy (9%) and Germany (7%). 

4. New businesses will face their first real resilience test. We expect the post-pandemic acceleration in business creation to push up the ‘natural’ rise in business insolvencies. In Europe, new business registration proved to be +14% higher in 2021-2023, compared to 2016-2019. For those firms, 2024 will be the first ‘true’ test of resilience, especially in countries that saw the newest businesses being established, notably France (+47%), the Netherlands (+28%) and Belgium (+14%).

5. Some sectors pose higher risks to jobs and the wider economy. The sectors and firms most exposed to the risks of weaker-for-longer demand and prolonged high financing costs are those that rely on discretionary spending (manufacturing and retail of non-essential goods, hotels, restaurants, tourism and other leisure activities) and labor-intensive ones (construction, road transportation, hotels, restaurants, health care, specific business services). Construction and real estate, which already experienced noticeable jumps in Europe and Asia in 2023, will boost national numbers of business insolvencies due to the cyclical downturn and for business demographic reasons. The continuation of the most recent pace would mean over 16,000 firms going bust in France, over 7,000 in the UK, close to 4,000 in Germany and 2,000 in Italy.

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