Global business insolvencies are expected to rise +10% in 2022 and +19% in 2023, a significant rebound after two years of decline. According to Allianz, this may bring global insolvencies back above their pre-pandemic levels in 2023, by +2%.

  • China to register +15% more insolvencies in 2023
  • France +29%
  • UK +10%
  • Germany +17%
  • Italy +36%

The rebound in business insolvencies is already a reality for most countries, in particular for the top European markets, which explain two-thirds of the rise (see How to Create Value in Insurance and Build Success?).

Allianz expects important rises in France (+46% in 2022 ; +29% in 2023), the UK (+51% ; +10%), Germany (+5% ; +17%) and Italy (-6% ; +36%). The region should exceed its pre-pandemic level of business insolvencies as soon as 2022 (by +5%).

At a global level, half of the countries analysed by Allianz have recorded double-digit increases in business insolvencies in H1 2022.

Countries that are still registering prolonged low levels of insolvencies include the US, China, Germany, Italy and Brazil, but according to Lemerle this trend should reverse next year.

Global business insolvencies

China to register +15% more insolvencies in 2023 on the back of low growth and limited impact from the monetary and fiscal easing. In the US, it expects an increase of +38% in business insolvencies in 2023 as a result of tighter monetary and financial conditions.

This normalisation in business insolvencies remains heterogeneous across sectors and size of firms. In Europe, we are seeing a rebound in insolvencies in slightly less than 60% of the industries, with a return to pre-pandemic levels most often in food/accommodation, manufacturing, and B2C services.

Ano Kuhanathan, Head of Corporate Research at Allianz Trade

At the same time, the global rebound comes mainly from the insolvencies of small corporates, confirmed by the moderate number of major insolvencies: 58 cases in Q3 2022 and 182 over the first three quarters, compared to 187 and 332 for the same period of 2021 and 2020.

A high energy bill, rising interest rates and wages are three major shocks which may have a significant impact on corporates’ profitability, which explain this generalised surge in business insolvencies.

Global business insolvencies

The energy bill, particularly for European countries, will remain the largest profitability shock. According to analysts, at current levels, energy prices would wipe out the profits of most non-financial corporates as pricing power is diminishing amid slowing demand.

Iffirms can pass one quarter of energy-price increases to customers, they can withstand a price increase of below +50% in Germany and +40% respectively in France.

Looking at France more precisely, we find that, excluding micro-enterprises for which the price caps apply, at least €9 bn of losses are at stake for more than 7000 firms in the 4 sectors for which wholesale electricity prices are currently above our estimated breakeven price, namely paper, metals, machinery and equipment and mining & quarrying.

This compares with €7 bn in Germany and 4000 firms at risk of losses from the rise in the energy bill, mainly in metals and paper sectors. Also, the interest rate shock and the acceleration in wages is imminent in the first half of 2023.

In Europe, this is likely to be equivalent to the Covid-19 profitability shock of -4pp (see Challenges for Global Insurance Industry after COVID-19). As expected, high cash balances for corporates (still 43% above pre-Covid-19 levels in the US, +36% in the UK and +32% in the Eurozone) have provided a significant buffer against the monetary policy normalisation in 2022, but the worst is still to come.

Allianz forecast that the upcoming rises in key rates in the US, UK and the Eurozone should increase average interest rates for corporates by an additional 200bps by mid-2023, which in turn will cut margins by -1.5pp in the US, -2.2pp in the UK and more than -3pp in the Eurozone countries.

Italy, Spain and France are most at risk. Moreover, the wage bill is slightly higher for Europe’s industrial sectors compared to the US. An increase of 4-5% in 2023 could wipe out between -0.5pp to -1pp of margins on average. Overall, the rise in financing and wage costs in a context of a low economic growth puts construction, transportation, telecom, machinery & equipment, retail, household equipment, electronics, automotive and textiles most at risk.

Global business insolvencies

In order to avoid a massive insolvency wave, public support will be essential.

The current fiscal support, more targeted and focused on limiting the acceleration in severity rates, is reducing the rise in insolvencies by more than -10pp over 2022 and 2023 for all the largest European economies.

It would expect governments to increase the size of fiscal support measures if the energy crisis worsens and intensifies the recession ahead, as business insolvencies would rise by a further +8pp to +25% in 2023 in the EU – the highest annual increase since 2009.

To fully absorb the additional shock, fiscal support measures should increase to 5% of GDP on average.

These big fiscal leaps would be much more constrained amid restrictive monetary policies.

To underline European solidarity, joint borrowing would allow all EU member states to formulate an adequate and aligned fiscal response to the energy crisis without putting debt sustainability at risk.


AUTHORS: Ano Kuhanathan – Head of Corporate Research at Allianz Trade, Maxime Lemerle – lead analyst for Insolvency Research at Allianz Trade

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