Corporate insolvencies are surging in advanced economies, a consequence of mounting borrowing expenses and the phasing out of extensive government support introduced during the pandemic. Over the last 12 months, the US witnessed a 30% rise in corporate bankruptcies compared to the previous year. Similarly, Germany reported a 25% increase in bankruptcies from January to September compared to the same period last year. This surge has been consistent since June. This is mentioned by the Financial Times.
Photo © 9dreamstudio | Dreamstime.com
Throughout the European Union, corporate insolvencies escalated by 13% in the nine months leading up to September, reaching an eight-year peak. This trend can be attributed to elevated debt servicing costs, the withdrawal of pandemic support, and soaring energy bills, particularly impacting energy-intensive sectors. Industries hardest hit by rising insolvency rates include transportation, hospitality and retail.
Government support schemes worth over $10 trillion helped businesses endure the pandemic's drastic economic impact. However, with these aids tapering off, many companies are facing bankruptcy. Refinancing debt at higher rates, even with central banks' anticipated rate peaks, looms as a challenge for numerous businesses in the coming months.This trend is anticipated to hinder global economic activity and job growth in the years ahead.
A 10% surge in global insolvencies is predicted in the coming year, with growth already hitting 6% in 2023. Various countries, including France, the Netherlands, and Japan, have seen insolvencies rise by over 30% year on year.
Sectors heavily reliant on labour, such as hospitality, transportation, and retail, are among the worst affected. Rising interest rates pose additional challenges for industries like real estate and construction. Yet, financial measures and subsidies might alleviate some pressure, preventing insolvency rates from reaching previous downturn peaks. Despite these challenges, the global economy continues to grow, and unemployment rates remain historically low in major economies.
Analysts highlight that while bankruptcy numbers are on the rise, they still remain relatively modest compared to historical standards in significant economies like the US, Germany, and France.
Source: www.ft.com