Transport Online – Bankruptcies will rise in 2023, the Netherlands leads the way
‘S-HERTOGENBOSCH – The number of financings according to Allianz Handel is expected to increase by 10 percent in 2022 and 19 percent in 2023.
Inflation pressures, monetary tightness, energy crisis and supply chain disruptions are jeopardizing corporate cash flows. But many governments decided to address the current situation by taking a number of fiscal measures. Will these measures be enough to contain a rise in insolvencies at both general and local levels? Allianz Trade, the world leader in trade credit insurance, explores this in its latest report: ‘Business risk is back: watch out for corporate bankruptcy’.
After two years of decline, a general acceleration of user default is expected.
According to Allianz, business insolvencies will increase in both 2022 (+10 percent) and 2023 (+19 percent). Two significant rebounds, occurring after two years of decline, which could bring the system of insolvencies 20 percent back above pre-pandemic levels (by +2).
Scaling up, half of the countries we analyzed recorded a double-digit increase in corporate insolvencies in the first half of 2022. Lemerle, principal insolvency research analyst at Allianz Trade.
Europe in particular could be hit by the sharp rise in bankruptcies in the two years: Allianz Trade expects significant increases in 2022; +29 percent in 2023 UK (+51 percent; +10 percent), Germany (+5 percent; +17 percent) and Italy (-6 percent; +36 percent). The region should surpass its pre-pandemic level by 2022 (by +5 percent). In Asia, China is expected to record +15 percent more insolvencies in 2023 due to weak growth and the limited effect of monetary and fiscal easing. In the US, Allz Handel expects a +38 percent increase in bankruptcies in 2023 as a result of strict financial and financial conditions.
In Europe, we are seeing an uptick in insolvencies in just under 60 of resources, with a return to pre-pandemic levels most common in the food/lodging services sectors. versus 187 and 332 in the same period of 2021 and 2020,” according to Ano Kuhanathan, Head of Corporate Research at Allianz Trade.
High utility bills and three interest rate shocks that weigh heavily on businesses’ cash flows.
How can this widespread expansion of corporate failures be explained? Allianz Trade identifies three major shocks that can have a significant impact on corporate profitability.
Energy bills will continue to be the biggest expense, especially for European countries. At the current level of energy prices to wipe out the profits of most non-financial companies, to lower the price due to decreased demand. If companies can pass on an increase in energy prices to their customers, they can withstand an increase of 50 percent and +40 percent.
Taking a closer look at France, we find that, with the exception of micro-enterprises subject to the price caps, ten at least EUR 9 billion in losses are at stake for more than 7,000 companies in the 4 sectors, namely paper, metals, machinery and equipment and mineral extraction. For them, wholesale prices are currently above our break-even price. In Germany this is 7 billion euros and 4000 companies are losing money due to the increase in energy bills, especially in the metal and paper sector.
In addition, the rent shock is looming in the first half of 2023, along with rising wages. In Europe, this likely comes with the Covid-19 profitability shock of -4pp. the eurozone +32 percent) provided a significant buffer against monetary policy normalization in 2022, but it is still to come.
Interest: + 200 basis points
“We predict that key interest rate hikes in the US, UK and the Eurozone will push lower rates by an additional 200 basis points by mid-2023, which in turn will push margins down by -1.5 pp in US, -2.2 pp in the UK and more than -3 pp in the eurozone countries, Italy, Spain and France are most at risk, and labor costs for industrial sectors in Europe are slightly higher than an increase of Thus, 4-5 percent in 2023 could wipe out margins between -0.5 pp and -1 pp on average.” Equipment, electronics, automobiles and textiles face the greatest risk from rising financing and labor costs in a context of a low economic growth,” said Ana Boata, Global Head of Economic Research at Allianz Trade.
State aid will prevent a massive bankruptcy wave.
To avoid the highest increase since 2009, government support in Europe increased as the recessive percent due to stronger energy crisis to -2.4. Allian amount that the current fiscal supportz, transaction focused and seriousness on the increase in the bankruptcy rate, the increase in bankruptcies in 2022 and 2023 by more than -10 pp for all largest European economies: -12 pp in Germany (i.e. 2600 companies and Italy), -15 pp in the UK (4,300) and -24 pp in Spain (2100).
If the energy crisis, the recession becomes even more severe, we expect governments to increase the future of fiscal measures as the number of corporate insolvencies in the EU would increase by a further +8 pp to +25 percent by 2023 – the highest annual increase since 2009. To absorb the additional support measures, the fiscal support measures will increase to an average of 5 percent of GDP. These large fiscal jumps will be much more limited against the background of a strong monetary policy. In order for European solidarity to work together, all EU countries can work together to borrow and coordinate budgetary responses to the energy crisis without jeopardizing debt sustainability.
Netherlands leader
According to the research department of Allianz Trade, the number of bankruptcies is nowhere increasing as fast as in the Netherlands. Next year, the number of bankruptcies will increase by 58 percent. A total of 44 countries were surveyed. The Netherlands comes out on top in this regard.
Johan Geeroms, Director Risk Underwriting Benelux at Allianz Trade: “As an open export country, the Netherlands is always ultra-sensitive to international developments. The downturn in the economy is hitting hard here. You could also question the government support. Many SMEs complain about its effectiveness. Another factor is that a large number of companies have to repay their corona debts. Nearly 300,000 entrepreneurs together have a debt of more than 19 billion euros.”