Allianz Trade report projects rise in global insolvencies

A global report from Allianz Trade expects business insolvencies to increase sharply this year as pressures from worsening GDP growth and slowing economic conditions are expected to be felt.

Allianz Trade, which provides trade credit insurance, says insolvencies will increase by 21% from last year, and another 4% next year. Despite the predicted rises, it doesn’t expect the total amount to be higher than pre-pandemic levels in 2019 until after next year.

It says nearly half of all reported countries will see businesses insolvent at levels similar to 2019 this year. Australia reported one of the highest rises, with a 45% increase from the previous year.

“Inside Europe, we expect the number of insolvencies to reach 59,000 in France in 2023 (+41% y/y), 28,500 in the UK (+16%), 17,800 in Germany (+22%) and 8,900 in Italy (+24%),” Allianz Trade Lead Analyst for Insolvency Research Maxime Lemerle said.

“In the US, we expect an increase of +49% in 2023 as a result of tighter credit conditions and an expected sharp economic slowdown, which would mean a return to 20,000+ insolvencies per year.”

Mr Lemerle says that Eurozone and US economies would need a 1.3% and 1.5% rise in GDP to help stabilise levels, as construction, retail, and services face prominent risk.

He says sectors with lower pricing power, higher wage bills and exposure to rising interest rates are facing additional challenges in meeting financial demands.

Mr Lemerle also highlights increasing concerns about the impact of a potential “credit crunch” from banking systems if they feel the pressure of a significant financial crisis forthcoming.

“According to our estimates, a financial crisis as seen during the 2008 financial crisis would mean 21,600 additional insolvencies in the US over 2023 and 2024, and 99,900 in Western Europe.

“Even without a major financial crisis, a credit crunch of the magnitude seen in the early 2000s during the tech bubble burst would lead to 12,900 and 95,300 additional insolvencies over 2023 and 2024, respectively.

“In case of a credit freeze that would stop new loans, insolvencies would increase by an additional 10,700 cases in the US and 46,300 cases in Europe.”