Insolvency risk rises in developed markets

Economic uncertainty and the UK's decision to leave the EU were behind the downbeat forecast from Atradius. Its predictions for developed markets would mean their weakest performance since 2009. According to Atradius the overall outlook for insolvencies has worsened through 2016 in line with downward revisions to GDP forecasts. Another credit insurer, Coface, said that eurozone GDP growth in the second quarter of 2016 was just 0.3%. This represents a significant slowdown in the area's economic recovery compared to an increase of 0.6% in the previous quarter. Growth was flat in France and Italy, although GDP in Germany rose much faster than expected. hide Brexit is likely to weigh on confidence in many advanced countries and has created financial market volatility, said credit insurer Atradius. In the UK, the vote to leave the EU has sparked a downward revision of GDP forecasts. This led to a worsening of bankruptcy projections in a number of advanced markets, Atradius said. Insolvencies in the UK are projected to rise by 2% in 2016 and 3% in 2017. This would reverse the trend of recent years that has seen a decline in UK corporate insolvencies. UK government statistics released in July showed an overall decline of 4% in corporate insolvencies in the second quarter of 2016. According to Cranfield Business Recovery, an insolvency consultant, annual corporate insolvencies continue to fall and are still at the lowest level since 1989. The company predicted, however, that corporate insolvencies are likely to rise once exit negotiations from the EU get underway. Simon Rockett, senior risk manager for Atradius, noted that the impact of Brexit on business confidence can already be seen in the UK's Purchasing Managers Index, which is contracting levels not seen since April 2009. "Confidence is likely to also be affected in a number of other eurozone countries, particularly those with high exposure to the UK, for example we are already seeing an upward revision of insolvency forecasts for Ireland and Netherlands," said Mr Rockett. "The Brexit fallout is likely to extend further across European markets with countries struggling indirectly with the economic slowdowns," he added. Coface also believes that Brexit could eventually hurt the UK economy. The slowdown will spread to continental Europe, notably through trade, it said. Across the eurozone, Atradius forecasts a modest improvement in insolvency, but most countries will still face higher levels of corporate bankruptcies compared to pre financial crisis 2007 levels. The Atradius report also predicted that commodity-rich countries like Australia and Norway will continue to face headwinds following the decline in commodity prices. Bankruptcies are forecast to increase by 8% in Australia and 2% in Norway during 2016. Insolvencies are predicted to rise year on year during 2016 in Finland, Switzerland, Denmark, Canada, New Zealand, Austria, Sweden and Luxembourg. Greece is expected to face a 6% increase in business failures this year, followed by a further moderate rise next year. Even the US, which has enjoyed relatively strong economic growth in recent years, is projected to see a 3% rise in insolvencies this year, disrupting the downward trend since 2011. In contrast, Portugal and Italy are expected to see a 2% decline in insolvencies this year. Spain is expected to have a 10% fall in bankruptcies. In a separate study this week, UK insolvency association R3 found that at least one fifth of UK corporate insolvencies in the past year were caused by late payment or the insolvency of another company. The survey of insolvency professionals found late payment for goods or services was a primary or major cause of 23% of insolvencies in the last twelve months. The failure of a supplier or customer was the primary or major factor in 20% of cases. The construction sector had the worst track record for late payment and has the highest number of insolvencies. "On the surface, late payment or the failure of another company can seem like factors outside a business' control, but there are plenty of steps a business can take to reduce the risks posed by its supply chain and customer base," according to Andrew Tate, R3 president.

Insolvency risk rises in developed markets

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