Insolvency is one of those elements of business that will never leave us. Just as some businesses thrive in the market, others struggle, and those of them are always destined to become insolvent. While you may be forgiven for believing that the level of insolvency remains the same everywhere, it is simply not true. Indeed, according to the leading trade credit insurer Atradius, there is an imbalance in the global economy that will cause some countries with increased insolvent businesses to shrink.
In their latest insolvency forecast, they published their forecasts for 22 major trading markets, and while their overall forecast is a drop in the number of insolvent businesses in 2016, this drop will be extremely modest. The potential of a new global economic recession and continuing low oil prices around the world pose a threat to business. However, they adhere to the projected -5% change in total insolvency.
Of greater interest is the news that the total number of bankruptcies expected in 2016 is 67% higher than in the pre-recession of 2007, and in some key countries surprisingly higher. Note for a moment that Portuguese companies are 440% more likely to become insolvent than in 2007, Italian companies are 280% insolvent and Spanish companies are 250% more insolvent. Obviously, economic recovery has not affected every nation equally.
The story goes to Greece, which in 2015 had huge economic problems as a result of which their parliament passed a deal to rebuild the eurozone. Of course, in 2015 the number of business failures increased by 10%, but in 2016 an increase of another 5% is expected, making it a very difficult time to be a Greek business.
Switzerland, Luxembourg, Norway and New Zealand are not expected to improve insolvency levels in 2016. While in the UK the number of insolvent businesses will improve by only 1%, which has fallen sharply from an improvement of 9%. observed during the 2015 fiscal year.
It all depends on a number of very volatile factors in the world economy, especially in China. The country has published a number of reviews of its growth over the year, and they have many times had to suspend their stock market due to a sharp drop in its value. If China recovers from these stumbling blocks, we may witness a completely different type of global economy that has good growth despite dire forecasts.
Jason Curtis, commercial director of Atradius, said in a report: “” The difficult external environment combined with low commodity prices is putting pressure on world markets, increasing the risk of insolvency despite the strengthening of the domestic economy. This is a clear warning to businesses that need to be mindful of trade risks, even if the economy recovers.
Despite improving UK and Irish statistics in 2015 and forecasting improvements for 2016, the market remains complex, with insolvency still much higher than before the recession. Few businesses are able to absorb the effects of a failed customer, and businesses need to continue to defend themselves and have sound credit management systems. ”