Insolvencies are back: Keep an eye on the domino effect

Euler Hermes forecasts that insolvencies will increase by +2% worldwide in 2016, and again by +2% in 2017. It will be the first rise since 2009. Reasons include too-low-for-too-long growth, increased turbulence in some sectors (commodities is a clear example) and the domino effect of major bankruptcies.

In 2015 there were 152 top bankruptcies by companies with turnover above EUR100mn, compared to only 95 in 2014. In 2016, Asia Pacific (+13% more business insolvencies than in 2015) and Latin America (+17%) are the hot spots. In the U.S., for the first time in 6 years, bankruptcies should increase by +3%.

This major shift is driven by the Metal and Energy sectors, accounting for half of public firms' bankruptcies in 2015. Western Europe is the only region where insolvencies are expected to decrease: -5% in 2016, and -3% in 2017. However, the annual number of bankruptcies remains higher than precrisis levels in 11 out of 17 European countries.

This calls for cautious optimism, as increasing nonpayment risk in emerging markets is having a toll on exporters.