Insolvencies: Splitting the Future


Remember being told in gym class that doing the split is a sign of flexibility? Perhaps the truism holds for life. But the maneuver can also be a little painful, especially if you’re not prepared. Well, it seems like the moment has arrived for a serious, global ouch. Emerging markets and advanced economies are moving in different directions and none more so when it comes to insolvencies. [more]

We decided to dedicate our latest Economic Outlook, a flagship publication of the Economic Research Department to insolvency trends. In The insolvency U-turn, we forecast that 2016 will be the first year since the financial crisis when insolvencies stop decreasing globally. While our Global Insolvency Index will stabilize at a neat, round zero, emerging markets are experiencing a sharp increase in bankruptcies. As for the so called advanced economies, these are going to advance a bit more.

While countries in the Asia Pacific region, battered by a Chinese propelled 3D – low Demand, Disinflation and high private Debt – will see 10% more bankruptcies, Western Europeans will enjoy a decrease of -5%. And as Latin America faces the consequences of Brazil’s erratic state of affairs with up to 14% more insolvencies, on the north side of the American continent the much dreaded number will be down 2%.

Why does this matter much more than just the stuff economic buffs' models are made of? Because bankruptcy levels are telltales, omens. Read them wisely, and you can forecast big trends in economic performance.

If you take a look at our global insolvencies map, you will see that it correlates with the global country risks map. In other words, follow the bankruptcies trail and you might find some golden nuggets of opportunity and risk. GDP, prices, trade risk –  are all related to the number of companies who will either survive the split with minimal pain or disappear from the scene.

The next 18 months will certainly be quite a seismic test. Stay tuned.

Ludovic Subran

Chief Economist

Euler Hermes


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