Top Stories
Allianz Trade Insolvency Report 2022
Global Banking & Finance Review®
Company
The war in Ukraine and new lockdowns in China have significantly deteriorated the balance of risks for companies. While cash buffers will prevent insolvencies surging quickly in the short term,
The war in Ukraine and new lockdowns in China have significantly deteriorated the balance of risks for companies. While cash buffers will prevent insolvencies surging quickly in the short term, Allianz Trade, the world leader in trade credit insurance, expects global insolvencies to rebound by +10% in 2022 and +14% in 2023, approaching their pre-pandemic level.
Companies now face multiple global headwinds once again, from extended supply-chain disruptions and transportation bottlenecks to high input costs and shortages, notably for energy and commodities but also labor. To add to this, they also face higher funding costs as the global surge in inflation accelerates monetary tightening.
Yet, Allianz Trade identifies three key signs of resilience:
“These factors suggest that the global economy should be able to avoid a big surge in insolvencies – at least in the short term. Nonetheless, companies will have to be vigilant: The normalization of global insolvencies has already started. For some countries, catching up with 2019 figures will take a few years, but we are back to a high level of non-payment risk, both globally and locally”, explains Clarisse Kopff, CEO of Allianz Trade.
Allianz Trade identifies some pockets of fragility which may result in a strong rise in insolvency levels in 2022 and 2023. Among which, in 2021, working capital requirements increased particularly in Asia (+2 days), Central and Eastern Europe (+2 days) and Latin America (+2 days), and for sectors such as household equipment (+8 days), electronics (+3 days) and machinery equipment (+2 days).
One out of three countries will return to their pre-pandemic levels of insolvencies in 2022
In the U.S (+8% in 2022 and +23% in 2023), companies should benefit from the buffers accumulated since the pandemic, helped by the Paycheck Protection Program being massively transformed into subsidies and the recovery in profits. China should also be able to maintain insolvencies in check (+1% in 2022, +11% in 2023), thanks to a low starting point and despite a rebound of difficulties for companies most exposed to international trade. In these countries, the number of insolvencies will not return to pre-pandemic levels in 2022 nor 2023.
As for other economies in Asia Pacific, insolvencies are likely to be on an upward trend due to deterioration of the regional and global environment (+9% and +17% in 2022 and 2023 respectively for the region as a whole), most often from a low (Australia and Taiwan) or very low level (Japan, South Korea, Hong Kong and New Zealand). Singapore and India will stand out, the former being back to a high level (+26% to 240 cases in 2022) and the latter (+49% to 1,150 cases) experiencing a strong catch-up from the long suspension of courts.
“Despite the drop in total insolvencies in 2021, China posted a stable number of insolvencies of firms with a turnover exceeding EUR1bn. We expect the ongoing renewed Covid-19 outbreaks and full or partial lockdowns across some of the country’s biggest and most economically important areas to represent severe challenges to a number of firms, and thereby forcing further policy support to contain the number of insolvencies and reduce the social impact. This will include actions from the central bank to raise the availability of funding and take financing costs down, and measures from the government to reduce taxes and fees for companies. Yet, in a context of softening global demand, we also expect export-oriented firms to be more negatively impacted, leading a trend reversal in insolvencies in the second half of the year,” concludes Françoise Huang, Senior Economist for Asia Pacific at Allianz Trade.
Insolvency is a financial state where an individual or organization cannot meet its debt obligations as they come due, leading to potential bankruptcy or liquidation.
Trade credit insurance protects businesses against the risk of non-payment by their customers, ensuring that they can recover losses from unpaid invoices.
Corporate tax is a tax imposed on the income or profit of corporations, which varies by jurisdiction and is typically calculated as a percentage of taxable income.
Explore more articles in the Top Stories category
