In its latest International Insolvencies Outlook, which is published twice a year, Euler Hermes gives a detailed description of expected failures for 21 industrialized countries. The global forecast for 2005 shows a slight rise of insolvencies after a two year decrease (minus five percent in 2004, minus three in 2003).

This decrease basically comes from the United States (minus five percent) and Japan (minus 18 percent). In Europe, the number of insolvencies should be stable in 2004 after a seven percent rise in 2003 and with a 2004 Gross Domestic Product (GDP) growth expectation of two percent.

For 2005, the outlook is less favorable: world growth should fall to three percent, as the increase of energy prices is reducing global household purchasing power and fiscal or monetary policies are tightened in some countries. This explains why Euler Hermes is expecting a one percent increase of its Global Insolvency Index for 2005.

The Global Insolvency Index enables a comparison of corporate insolvencies between countries after adjusting for problems linked to different national definitions and taking into account the economic size of each country.

The positive performance for 2004 is the result of a worldwide GDP growth expectation of four percent, mainly realized in the US and Japan, countries with a sound economic situation, whereas in Europe economic growth should not be higher than two percent.

The trend in failures is different according to the countries: "The surprisingly good performance in France and Germany, where insolvencies decreased by four percent, is partly compensated by the strong rise of nine to ten percent in insolvencies in the UK and the Netherlands," says Philippe Brossard, Director of the Euler Hermes Economic Research Department.

Global industry sectors show an improvement in the number of insolvencies. "The air transportation industry, in contrast, is going through a worldwide crisis and the restaurants and hotel sector is having a hard time in several European countries (France, Belgium, Spain, Italy, Switzerland) because of less tourism and lower domestic demand", adds Philippe Brossard.

Even though on a year average basis, 2004 will show an exceptionally strong world growth, the global economy has begun to slow since the spring of 2004, and the slowdown will materialize in 2005 figures.

Euler Hermes forecasts a decrease of economic growth down to three percent in 2005. This will result in an increasing number of insolvencies in Europe and Japan although some European countries are expected to see their insolvencies continue to fall (France, Austria, Poland, Scandinavia).

In the United States however, failures are expected to continue to fall by four percent despite a forecast of a slower GDP growth (three percent) which will not endanger the financial situation of companies.

The first six months of 2004 showed a four percent rise in insolvencies because of an increasing number of companies that were put under Chapter 11 legislation during the first quarter. (Chapter eleven is part of the US bankruptcy code. A Chapter eleven filing is an attempt to stay in business while a bankruptcy court supervises the "reorganization" of the company's contractual and debt obligations.)

But the overall 2004 trend remains on the low (minus five percent). The lower economic growth expectations for 2005 (three percent) should not significantly deteriorate the financial situation of companies, which should still be able to benefit from tax relief. The slowdown in insolvencies is expected to subside in 2005 (minus four percent).

With an expected 2.2 percent GDP growth for 2004, insolvencies should fall by three to four percent, mainly in the industry (minus ten percent), the transportation and business services sectors. Since the beginning of the year, they are on an upward trend in the restaurant and hotel sector (plus seven percent), in construction (plus 1.2 percent) and are stabilizing in the trade sector (26 percent of total insolvencies).

In most of the regions they are declining. But they are stable in the Parisian area (25 percent of all failures) and rising in the Provence Alpes-Côte d’Azur region. The economic slowdown forecast for 2005 is expected to slow the decrease in French insolvencies to two percent.

Thanks to flourishing exports during the first half-year due to the strength of global trade, the number of German insolvencies fell during that period. There was a big difference however between the situation in former West Germany (plus two percent) and former East Germany (minus five percent).

Manufacturing industry is making the best showing. In contrast, failures continue to increase in the restaurant and hotel sector well as in services. The 2004 forecast is of a four percent fall in insolvencies and for 2005, Euler Hermes expects them to rise slightly (plus one percent).

Despite a booming economy, the number of failures has grown during the first nine months of the year, due to an explosion in failures of individuals (plus 29.5 percent). Company insolvencies, on the other hand, have decreased by 14.8 percent with a 36 percent reduction in the wholesale sector.

In 2004, there should be more than 54,000 failures among which 76 percent individuals. As the British economy is expected to slow down in 2005, the number of forecast insolvencies is more than 60,000.

Despite surprisingly robust GDP growth (expected to be up 2.4 percent), the number of insolvencies in Belgium should be up three percent to over 7,800 this year. SMEs account for almost 60 percent of these failures followed by one person companies (18 percent).

The Flemish region, in which more than half of Belgian companies are established, accounts for 55 percent of the total failures and posts a 6.4 percent growth. The restaurant and hotel sector is most hard hit with a ten percent rise whereas bankruptcies in the industry sectors are stabilizing. As economic growth is expected to decelerate to 2.2 percent in 2005, the number of insolvencies should continue to rise (plus one percent).

Although less spectacular than the 29 percent increase in insolvencies in 2003, the rise for this year is expected to be a solid nine percent.

The weak domestic demand directly affects the trade, household services and the restaurant and hotel sectors, where most of the insolvencies occurred, together with the agriculture sector. The construction sector and industry in general show a fall in failures for the first nine months of the year.

The pace of increase will slow only marginally in 2005, to plus eight percent, with a GDP growth forecast hardly accelerating to plus 1.5 percent.

The total number of Spanish failures should reach 990 in 2004, down two percent thanks to a strong domestic household demand which led to fewer insolvencies, especially in the trade and services sectors.

For 2005, economic growth is expected to be the same as in 2004, i.e. 2.8 percent. However, a new bankruptcy law might disrupt the follow-up on insolvencies. The faster treatment of insolvency procedures might cause the anticipated number of failures to increase by four percent.

In Italy, the number of insolvencies should rise by two percent in 2004, with most of the failures occurring in trade, industry and construction sectors. Stronger foreign competition weakens traditional sectors such as textile and leather. Air transportation and tourism are also having a hard time, for example Alitalia.

As economic growth is expected to remain weak (plus 1.3 percent) in 2005, the number of insolvencies is expected to rise by another two percent.

In Norway, Sweden and Finland, thanks to a positive economic climate, the number of failures is expected to fall by respectively twelve, ten and four percent in 2004 after several years of rise (except for Finland where the decrease already started in 2003).

Insolvencies went down in all sectors except retail and the restaurant and hotel sector in Sweden, which showed an increase. In Denmark insolvencies remained stable in 2004, mainly due to a surge in failures in household services and the restaurant and hotel sector.

In 2005, insolvencies are expected to fall by two percent despite the nearing economic slowdown. This trend is expected to continue in 2005 in both Norway and Sweden (minus two and minus six percent respectively), whereas in Finland the failures should stabilize at around 2,000 a year.

The Czech Republic and Poland show a strong decline in the number of insolvencies (minus 7.4 and minus eleven percent) for 2004, in line with strong GDP growth.

This situation should not change in 2005: indeed, excellent economic growth forecasts of 3.8 and 4.5 percent respectively will allow failures to continue to fall in Poland and to stabilize in the Czech Republic. In Hungary, the number of insolvencies is also expected to stabilize in 2005 after a four percent rise in 2004 due to the high mortality rate of the many newly created companies.

Euler Hermes is the world leader in credit insurance, an integrated factoring group in Europe and a leader in bonding and guarantees. With 6,000 employees operating in 36 countries, Euler Hermes holds 36 percent of the global market for credit insurance and offers a comprehensive range of services for the management of trade receivables.

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The detailed, country by country analysis of the insolvencies is featured in the "Economic Outlook" No. 1093, available on request at Euler Hermes.


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