Global bankruptcies are still on the rise, implying higher export risks: this is the conclusion of the latest Global Insolvency Report by Euler Hermes, which covers 44 countries and 87 percent of global GDP and provides the last update of its Global Insolvency Index. Business insolvencies increased by +9 percent in 2019, mainly due to a prolonged surge in China (+20 percent) and, to a lesser extent, a trend reversal in Western Europe (+2 percent) and North America (+3 percent).
Euler Hermes Global Insolvency Index
Insolvencies to rise in 4 out of 5 countries in 2020
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Continuing economic weakness, political and social uncertainties
Euler Hermes’ experts believe this worrying trend is due to the combination of a low-for-longer pace of economic momentum, notably in advanced economies, in the industrial sector, and the lagging effects of trade disputes, political uncertainties and social tensions.
In 2020, even if monetary policies should remain supportive, it will not be enough to counterbalance softer demand, tougher price competition and an increase in production costs, notably wages.
Export risks are on the rise almost everywhere
As a result, insolvencies should rise again by +6 percent globally this year for the fourth time in a row, with Asia still as the key contributor (+8 percent year-on-year) notably due to China (+10 percent) and India (+11 percent). In Western Europe, economic growth will remain below the historical threshold which usually stabilizes the number of insolvencies (+1.7 percent), leading to an increase in most countries. All in all, four out of five countries will post a rise in insolvencies in 2020, with Brazil (-3 percent year-on-year) and France (0 percent) as the key exceptions.
In 2019, the overall increase was higher, but only two out of three countries were impacted by rising insolvencies. This means that export risks are on the rise almost everywhere: there is hardly a safe haven anymore.
Serious domino effects of major insolvencies
The number of major insolvencies from Q1 to Q3 2019 remained relatively stable year-on-year (249 major insolvencies) but their severity worsened in terms of cumulative turnover (+39.1 billion euros to 145.2 billion euros), which could have serious domino effects on providers along supply chains. The greater the turnover of the bankruptcy candidates, the greater the damage to individual suppliers. The hot spots were construction in Asia, energy and retail in North America, and retail and services in Western Europe.
“Overall, this insolvency outlook calls for a close monitoring of trade disputes and other political and policy-related risks, as the level of economic volatility will be very high all along 2020. More selectivity and preventive credit management actions will be needed,” said Maxime Lemerle, Head of Sector and Insolvency Research at Euler Hermes.
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** As of December 31, 2023.
** As of December 31, 2023.
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Euler Hermes group
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