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Risks of insolvencies continue to trouble global markets

By CreditMan Tuesday, February 16, 2016

Insolvencies will continue to hit global markets in 2016, exposing businesses to the risk of non-payment, warns leading trade credit insurer Atradius.

In its latest Insolvency Forecast, part of a suite of economic research reports, Atradius publishes predictions for insolvency levels in 22 key trade markets. While insolvencies are forecast to fall in 15 markets, the anticipated improvements are expected to be small. Low oil prices, US monetary normalisation and the uncertain impact of a slowdown in emerging markets will all contribute to a continuing risk of insolvency.

In line with the solid economic recovery in the Eurozone, the forecast for the business environment is positive. However, with only -5% change in aggregate insolvencies, the improvement is significantly below that seen in 2014, when the economy was much more fragile. The total number of bankruptcies anticipated for 2016 is also still 67% higher than in 2007 and the level of business bankruptcies around the periphery of the Eurozone remain markedly higher than pre-global financial crisis. For example:

  • Portugal - insolvency level remains 4.4 times higher than in 2007
  • Italy- 2.8 times higher
  • Spain - 2.5 times higher

The outlook for the Eurozone continues to be impacted by Greece where a further 5% increase in business failures is forecast for 2016 following an estimated 10% increase in 2015. Political uncertainty, low consumption and capital controls continue to create a very difficult operating environment for the SMEs that dominate Greece’s economy. The continuing debt crisis has driven national insolvency rates to more than five times the level in 2007.

Across the Atlantic, North America will face pressure from low oil prices as investment in the relatively expensive American and Canadian oil stays restrained. Canada is forecast to see no change in insolvencies and the US is forecast to see a drop of only 2%.

The low level of commodity prices is expected to weigh on the outlook for commodity-dependent Australia which looks set to be the worst performing country in terms of business failures with an anticipated rise in insolvencies of 6%.

Switzerland, New Zealand, Luxembourg and Norway are predicted to see no improvement to insolvency levels this year. Meanwhile, insolvencies in the UK are forecast to improve by only 1% in 2016, following an improvement of 9% in 2015.

For the second year running, the strongest improvements in insolvency rates are expected in the Netherlands and Spain. Insolvencies in the Netherlands are forecast to decrease by 15% in 2016 following an estimated decrease of 25% last year while Spain is predicted a drop in insolvencies of 10% following a reduction of 25% in 2015. Meanwhile, Ireland is once again in the top five countries with insolvencies forecast to fall by 6%, a slowdown from 10% in 2015.

Jason Curtis, Commercial Director at Atradius, said: “The challenging external environment combined with low commodity prices is putting pressure on global markets which is increasing the risk of insolvencies in spite of strengthening domestic economies. This is a clear warning shot to businesses which must stay attuned to the risks of trading even as the economy recovers.

“Despite improvements in insolvency statistics for UK and Ireland in 2015 and predicted improvements again for 2016, the market remains challenging with insolvency levels still significantly higher than pre-recession. There are few businesses able to absorb the impact of a failed customer and businesses must continue to protect themselves and have robust credit management systems in place.”

For more information and a suite of free downloadable reports, visit the Atradius website www.atradius.co.uk. You can also follow Atradius on Twitter @AtradiusUK

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