No rest for the leveraged

  • The rebound in business insolvencies is picking up speed: Our Global Insolvency Index is set to jump by +21% in 2023 and +4% in 2024. Half of the countries we analyzed are likely to exceed their pre-pandemic levels of insolvencies in 2023, and three out of five in 2024. In Europe, we expect insolvencies to reach 59,000 cases in France in 2023 (+41% y/y), 28,500 cases in the UK (+16%), 17,800 cases in Germany (+22%) and 8,900 cases in Italy (+24%). In the US, we expect an increase of +49% in 2023 as a result of tighter credit conditions and the sharp slowdown, which will mean a return to 20,000+ insolvencies per year. China should see a moderate increase in insolvencies (+4%) as the construction sector is still ailing.
  • Lower growth in 2023 and 2024 will have its toll. We calculate that the Eurozone and the US would need 1.3pp and 1.5pp of additional GDP growth on average in 2023-2024 to stabilize the number of insolvencies. The current muddle through environment is the main reason behind our forecast. Watch out for domino effects: The number of insolvencies for firms with more than EUR50mn in revenue is now slightly above pre-pandemic levels (construction, retail and services most affected).
  • Beyond demand, prolonged pressure on profitability, weaker cash buffers and tighter-for-longer financial conditions are testing the resilience of the most fragile companies. This includes those with the least pricing power (e.g. specialized retail such as textiles, household appliances, and some services including restaurants); those exposed the most to a higher wage bill such as retail, transportation and construction; and those most exposed to rising interest repayment costs (construction, durable goods). Cash is king but credit management practices have deteriorated according to latest working capital requirements data.
  • Credit is crunching. According to our estimates, a financial crisis as that 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. And in case of a credit freeze that would stop new loans (bring credit growth down to 0), insolvencies would increase by an additional 10,700 cases in the US and 46,300 cases in Europe. 
Maria Latorre
Allianz Trade
Maxime Lemerle
Allianz Trade