UK to see prolonged increase in insolvencies

Based on figures from Allianz Trade Global Insolvency Index, this is due to domestic firms having to deal with a “fragile situation” amid a sharp growth deceleration, earlier monetary tightening and rapid inflation in addition to specific Brexit-related issues. 

Overall, the index is set to jump by 21% in 2023 and four percent in 2024 with half the countries analysed likely to exceed their pre-pandemic levels of insolvencies at the end of this year, and three out of five in 2024. Compared to 2019, business insolvencies will be up 41% in 2024, with most exceeding their 2019 figures by the end of next year.  

In France, insolvencies are expected to reach 59,000 by 2023 – up 41% – 17,800 in Germany – an increase of 22% - and 8,900 in Italy – up 24%.  

In the US, meanwhile, insolvencies are predicted to increase by 49% in 2023 because of tighter credit conditions and a sharp economic slowdown, meaning a return to 20,000 plus insolvencies a year, while China is expected to record a moderate increase in insolvencies of four percent.  

The main driver of this, according to Allianz, is the “current muddle through environment” the global economy is currently in. The business also expects elevated input costs to persist, along with a prolonged recovery in wages and the long-lasting impact of rising interest rates.  

This combination will increase corporate risks at a time when weakening global demand reduces firms’ ability to pass on price increases to customers, unlike in 2022. To add to this, the increase in working capital requirements recorded over the past year – most notably in machinery and transport equipment – is here to stay.  

Meanwhile, reflecting what would happen if another major financial crisis happens, Allianz Trade’s lead analyst for insolvency research Maxime Lemerle said: “According to our estimates, a financial crisis as that seen during the 2008 financial crisis would mean 21,600 additional insolvencies in the US over 2023 and 2024, and 99,900 in Western Europe.  

“Even without a major financial crisis, a credit crunch of the magnitude seen in the early 2000s during the tech bubble burst would lead to 12,900 and 95,300 additional insolvencies over 2023 and 2024, respectively. And in case of a credit freeze that would stop new loans, insolvencies would increase by an additional 10,700 cases in the US and 46,300 cases in Europe.”