Business insolvencies increased by +9% in 2019, mainly due to a prolonged surge in China (+20%) and, to a lesser extent, a trend reversal in Western Europe (+2%) and North America (+3%).
Belgium will continue with new records in the number of insolvencies (from +7% in 2019 to +2% in 2020) but part of the rise is due not to cyclical rea-sons but to a change in the law – now used for liberal profession insolvencies and also by the Courts to get rid of inactive companies and to limit certain forms of fraud.
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% globally this year for the fourth time in a row, with Asia still as the key contributor (+8% y/y) notably due to China and India. In Western Europe, economic growth will remain below the historical threshold which usually stabilizes the number of insolvencies (+1.7%), 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% y/y), France (0%) and Luxembourg (0%) as the key exceptions.
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, 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.