Global insolvencies are projected to fall 8 percent in 2014, but still remain 13 percent above pre-crisis levels, according to Euler Hermes’ latest global economic outlook.
- In some countries – Austria, Canada, Germany, Japan and other Southeast Asian countries, Switzerland, the UK and the U.S. – insolvencies have already returned to low levels. They will experience a more limited drop in 2015, or even a potential increase depending on changing business conditions. On top of rapidly changing business backdrops, heterogeneous sector risk profiles could contribute to higher-than-expected total insolvency numbers.
- European countries whose private sectors suffered the most from austerity packages (e.g., Portugal and Spain) will begin to see marked improvements, due to adjustments made in previous years. The return of competitiveness and investor confidence will begin to pay off, with the potential gains of trade inside and outside Europe determining the strength of the positive trend. However, a significant number of industries in these economies face insolvencies including companies weakened by a prolonged period of depressed domestic demand (Southern Europe) or higher sensitivity to the business cycle (Northern Europe).
- Emerging markets like Brazil, China, Russia and Turkey will face external instability and headwinds, along with slower growth due to changing business models. This will continue to significantly impact company profitability and solvency, hampering the development of sound supply chains. As a result the catch-up trend in these economies, in terms of nominal GDP numbers, will increase the number of companies going bust.
- In some Western European countries – including Belgium, Finland, France, Greece, Italy and Luxembourg – company bankruptcies remain at high levels. Central and Eastern European countries face similar challenges due to a domino effect: insolvencies will only decrease by 2 percent in 2014. Targeted and effective cyclical measures, in addition to planned structural reforms, are needed to boost recovery.