Business failures take off at 44% between 2019 and 2023

After the post-covid recovery, corporate insolvencies are expected to experience a general acceleration of +10% during this year and +19% in 2023 internationally while Morocco’s rate is estimated at +44% between 2019 and 2023. This is what was anticipated in the report called “Business risk is back”, published recently by the global insurer Allianz Trade.

The increase in the energy bill, interest rates and the rise in wages induced by inflation are factors explaining the increased difficulties of companies, particularly in the construction, transport, telecommunications and textile sectors. The rise in insolvencies is all the more striking as during the pandemic they were at an artificially low level due to financial aid.

According to Allianz Trade, global corporate bankruptcies are expected to resume in 2022 (+10%) and 2023 (+19%). Two strong recoveries, coming after two consecutive years of decline, are expected to push insolvencies above pre-pandemic levels (+2%) from next year.

The rebound in corporate insolvencies is already a reality for many countries, especially major European markets such as the UK, France, Spain, the Netherlands, Belgium and Switzerland. These markets also explain two-thirds of the rise in corporate insolvencies expected worldwide this year. Half of the countries we analyzed have already recorded double-digit growth in business insolvencies in the first half of 2022. Conversely, the United States, China, Germany, Italy and Brazil continue to show low levels of insolvencies, but the trend is expected to reverse next year in these countries», dissects the head of failure studies at Allianz Trade, Maxime Lemerle.

The rise in corporate insolvencies will certainly affect European countries over the next two years. According to the world leader in insurance, strong growth is estimated for countries such as France, with an increase in insolvencies of +46% in 2022 and +29% in 2023, the United Kingdom with an increase +51% and +10% respectively, Germany +5% and +17%, while Italy is expected to -6% this year and +36% next year. According to the same source, Europe is expected to surpass pre-pandemic corporate default levels of +5% by the end of 2022.

As for Asia, the report forecasts for China a +15% increase in insolvencies in 2023, following the economic slowdown experienced by the country, in addition to the limited impact of monetary easing and budgetary.

The United States will not escape this take-off either and should expect an estimated increase of +38% for the following year, a direct consequence of the tightening of financial and monetary conditions.

For Ano Kuhanathan, head of sector research at Allianz Trade,“The normalization of failures remains heterogeneous according to the sectors and the size of the companies. In Europe, we are seeing an acceleration in insolvencies in almost 60% of business sectors, with a return to pre-Covid-19 levels mainly for hotels and restaurants, manufacturing and B2C services. At the same time, the broad-based rebound in corporate insolvencies globally is driven mostly by small business insolvencies. The number of major failures is also moderate at the international level: there are only 182 cumulative cases over the first 9 months of the year, compared to 187 cases in 2021 and 332 cases in 2020”.

On the one hand, the increase in the energy bill is one of the major factors that have led companies towards these failures. This is involved in Morocco and more particularly in the countries of the European shore. Allianz Trade explains that if companies could pass on even a quarter of the increase in energy prices in their sales prices, they could sustain an increase in energy costs of +50% in Germany and +40 % in France, for example.

On the other hand, the rise in terms of interest rates and in particular wages represents a profitability shock for almost the majority of companies, especially with the advent of the covid-19 crisis. Furthermore, the document projects that “the worst to come” with strong corporate cash reserves still +43% above pre-pandemic levels in the US, +36% in the UK United and +32% in the European zone, thus allowing companies to protect themselves against the normalization of monetary policy in 2022.

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