As Brexit looms ahead, importers and consumers have been affected by raising input costs and a weaker pound. Euler Hermes forecasts an increase in insolvencies by 8% in the UK in 2018. The country is an exception in Western Europe where most countries should experience either a decrease or stabilisation in the number of insolvencies thanks to the economic recovery and supportive monetary conditions.
Despite the rebound in growth and trade, more and more domestic sectors are exposed to large business failures. In 2017, large insolvencies increased by 21% with notable increases in services, retail, agrifood and construction. Competition and digital disruption help explain this trend and subsequent risks for suppliers.
In its annual Global Insolvencies Index, Euler Hermes forecasts insolvencies in 43 countries worldwide. While the downward trend in business insolvencies paused in 2017 (1%) due to a rebound in Asia and emerging markets such as Russia and Brazil, insolvencies are set to decrease globally by -1% in 2018. Yet in one out of two countries, the number of bankruptcies remains higher than in 2007.
Alongside the UK is China. China suffered its fifth consecutive year of turbulence and strongest insolvency increase in 2018. The number of business failures will continue to rise in China (10%) for the fifth consecutive year – after a significant pick-up in 2017 (35%). The country is ranked as experiencing the highest increase in the number of insolvencies worldwide. Bankruptcies are expected to rise in Asia as the region suffers from the deceleration in China.
Ludovic Subran, Chief Economist at Euler Hermes said “All in all, insolvencies are stabilizing worldwide after seven years of decreases. This confirms the return of credit risk with the economic recovery. In 2018, companies in Asia, Latin America, Eastern Europe and the UK should be closely monitored. In addition, large bankruptcies are increasing fast as disruption in industries such as services and retail leaves no one unscathed. Mind the domino effect!”