Global insolvencies set to peak this year before levelling off, says Allianz

Global insolvencies continued to rebound last year and are now above pre-pandemic levels in most advanced economies, finds Allianz Trade, which expects further acceleration this year before stabilising in 2025.

“As expected, 2023 recorded a high-speed and broad-based rebound in business insolvencies,” says Allianz Trade in its Global Insolvency Report.

Insolvencies rose by 7% last year after a rise of 1% in 2022. Allianz Trade expects the number to rise by 9% this year, fuelled by a continuing increase in four out of five countries, before stabilising in 2025 at that higher level.

Lower growth, trade disruptions and geopolitical uncertainty are set to drive the rise this year. The largest increases are expected in the US (+28%), Spain (+28%) and the Netherlands (+31%).

The “broad-based” rise would push two out of three countries above their pre-pandemic number of insolvencies, up 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 three 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.

The report says the UK (15%) has the highest number of “fragile firms” compared to major European counterparts such as France (14%), Italy (9%) and Germany (7%).

The number of business insolvencies rebounded in three out of four countries in 2023, with most recording a double-digit increase, the research finds.

According to the trade credit insurer, there were sharp rises in the US, up 40%, and in the Netherlands (+52%), France (+35%) and Germany (+23%). Numbers were up 14% in the eurozone.

Allianz Trade has identified five “reality checks” for companies in the years to come that will fuel insolvencies. The first is a looming profitability squeeze. Second, growing uncertainty from geopolitics to rising non-payment risk. Third, financing and liquidity conditions remain tight. Fourth, new companies will face their first real resilience test. And fifth, it warns that 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 labour-intensive ones (construction, road transportation, hotels, restaurants, health care, specific business services),” says Allianz Trade.

“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 more than 16,000 firms going bust in France, over 7,000 in the UK, close to 4,000 in Germany and 2,000 in Italy,” it adds.