The global trade outloook is volatile this year, for a whole stack of reasons. Continued tension in the Middle East, a series of elections which may polarise activists, regardless of the results, plus a general transfer of wealth from developed Western economic blocs to other parts of the world. Then there are “black swan” events like volcanic eruptions, escalation of warfare, or Cat events that nobody saw coming. These can all have long lasting effects on global supply chains, as the Ever Given grounding proved a few years ago.
Companies, like empires, rise and fall. Sometimes, like Carillion the collapse can be sudden like a House of Cards. Other times, like the gradual decline of Marks and Spencer, it’s more about failing to adapt to a changed country than a failed clothing line. Any research on global insolvency trends is worth noting from an insurer point of view, since financial strain often leads to insurance policy cancellation.
Here’s the word;
Allianz Trade releases today its latest Global Insolvency Report and unveils updated forecasts for 2024 and 2025. According to the world’s leading trade credit insurer, 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.
Fragile firms and liquidity concerns to drive UK insolvency peak in 2024
After a significant acceleration in UK insolvencies in 2023 (+15%), the rate is expected to rise again in 2024 (+10%) to c.31,000 business, before a notable decrease and somewhat of a normalization in 2025 (-6%). While the UK economy is set to perform slightly better than Allianz Trade’s Western Europe index (2024: +11%, 2025: -6%), the UK economy lags behind the global average.
Despite recoveries in 2025, insolvencies are set to remain much higher than pre-pandemic levels, at +43% in 2024 and +34% in 2025. A full breakdown can be found in the statistical appendix on page 18 of the report attached, entitled: ‘Global Insolvency Outlook:Reality check’.
The UK is not exempt to costly financing, maintaining concerns over firms’ capability to absorb the costs of borrowing and mitigate pressure on overall profitability. At the same time, the limited availability of financing will put the most exposed sectors and firms at risk, including construction and real estate, hospitality, transportation and wholesale/retail.
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 7,000 firms going bust in the UK.
The number of fragile firms (SMEs at risk of insolvency, as a measure of their profitability, capitalization and interest coverage against Allianz Trade-defined thresholds, remains noticeable in the UK at 15% – higher than other major European economies of France (14%), Italy (9%) and Germany (7%). The sectors and firms that are most exposed are those with higher financing needs due to cyclical reasons (rise in operating costs, overstocking), structural factors (longer production cycle/higher working capital requirement) or structural changes – such as the recent switch of inventory-management to expensive ‘just-in-case’ strategies amid both geopolitical uncertainties and supply-chain disruptions (near/friend shoring).
COMMENT
Ana Boata, Head of Economic Research at Allianz Trade, said: “In a context of high interest rates and tight access to financing, corporates are increasingly burning cash while approaching the debt repayment wall. The weak global and domestic economic environment should keep turnover growth at a limited level in 2024 while the cost structure should continue pressuring margins. This will expose companies with high pressure on their balance sheets, particularly those with low profitability and high debt. With a higher proportion of fragile firms than any other major European economy, UK businesses are in for a series of stark reality checks.”
Insolvencies are (already) above pre-pandemic levels in most advanced economies
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%). 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)”, explains Maxime Lemerle, Lead Analyst for insolvency research at Allianz Trade.
The global insolvency acceleration is not done yet, 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%), fueled 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. 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”, states Aylin Somersan Coqui, CEO of Allianz Trade.
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