Allianz Trade Analysis - A pragmatic approach to global insolvencies in 2024

Business Forum

5 March, 2024 at 10:59 AM

As expected, 2023 recorded a high-speed rebound in insolvencies in three out of four countries (55% of global GDP). Data from Q4 show that the upside trend accelerated at the end of the year in most countries, with significant jumps in the Americas (+54% y/y and +35% y/y in North America and Latin America, respectively) and in Asia (+67% in South Korea, +47% in Australia and +35% in Japan). Globally, average insolvency growth accelerated from +23% in 2022 to +29% in 2023, with the fastest growth in 2009 (+33%). This rebound was largely expected as the number of insolvencies seen in 2020 and 2022 was artificially reduced by the massive state support provided to firms during the Covid-19 crisis and then following the shockwaves of the war in Ukraine.

A quick comparison with 2016-2019 levels shows that, between 2020 and 2022, support measures spared the equivalent of three-quarters of insolvencies in countries such as the US, Germany, Austria, Norway, Portugal and New Zealand, and the equivalent of one year of insolvencies usually reported in Australia, the Netherlands, France, Ireland and Italy.

Western Europe remained a key contributor to the global rise despite a slower recovery (+15). North America also boosted the global recovery, with the US recording a major increase (+47% y/y), while China offset the growth in insolvencies seen in most other Asian countries (Japan, South Korea, Australia, Hong Kong, New Zealand). Exceptions are companies mainly in emerging markets, including Brazil, Russia, China, South Africa and Turkey, as well as some countries in Central Europe (Bulgaria, Czech Republic and Latvia) and Asia (Singapore, Taiwan). Allianz Trade analysts expect India to be part of this list, although figures for 2023 are not yet available. In these countries, the annual decline in insolvencies ranged from -7% in Singapore to -41% in Turkey.

Looking ahead, before an expected flattening of insolvencies in 2025, analysts anticipate a further acceleration of insolvencies worldwide in 2024, with a 9% year-on-year increase. Four out of five countries will see a +12% year-on-year increase this year, with the most in the US (+28%), Spain (+28%) and the Netherlands (+31%). However, in 2025, analysts forecast a stabilisation of the global insolvency index, with most countries seeing a reversal of the trend.

Before the possible global recovery that is expected in 2025, firms need to manage the decelerating demand. The US, euro area and emerging markets, including China, will face slow GDP growth, which will increase pressure on profitability at a time when costs are still high due to energy prices, rising wages and persistent supply chain pressures (e.g. Red Sea, Panama Canal). In addition, after a series of shocks, the 2024 election calendar will increase economic uncertainty as countries accounting for 60% of global GDP head to the polls soon. This context will add a level of complexity and risk to operations, making it difficult for firms to develop accurate forecasts and business plans. Thus, volatility in raw material costs is expected, making it difficult to manage supply chains and budgeting processes effectively.

Allianz Trade analysts have identified five main challenges - which will characterise 2024 as a pragmatic year for companies and the economy, especially in Europe - such as: reduced profitability, increased uncertainty, reduced refinancing and liquidity conditions, increased insolvencies and higher risks to jobs.

Last year in Europe, company insolvencies exceeded pre-pandemic levels in two out of five sectors. 23 countries in the Allianz Trade study recorded a 66% increase in insolvencies across all sectors (i.e. 121 out of 184 sectors) in construction, transport and warehousing, information and communications. However, the first two sectors stand out with a strong recovery, well above pre-pandemic levels in several countries, along with accommodation and food services.

Retail in Western Europe, construction in Asia and services in the US recorded the largest increases in insolvencies. In Q4 2023, the number reached a high level (92), slightly above the pre-pandemic average (7 cases compared to the 2017-2019 average). The year 2023 ended with a significant rebound in the number of insolvencies, which reached 365 cases, up from 270 in 2022 (an increase of around +35%). However, in 2023, the turnover of insolvent companies remained almost stable at €175 billion, down 2% from €179 billion.