Global Credit Insurance underwriters Euler Hermes’ recent economic outlook “Insolvencies: The tip of the iceberg” looks at insolvencies around the globe in 2016 and the forecast for 2017. The outlook reports that the downward trend in global insolvencies is coming to an end, with a limited drop of -2% in 2016 and a forecast rise of +1% for 2017.
Global headwinds faced by companies in 2016 contributed to this trend for the year, which include:
- A sluggish global economy: real GDP growth only +2.5% in 2016 vs. +2.7% in 2015.
- A sharp slowdown in global trade: export volume growth at +1.9% in 2016 vs. +3.1% in 2017.
- Fierce price competition putting turnovers under pressure.
- Volatility in exchange rates and international financial flows which has kept financing under stress.
- Localised political and economic hot spots including the Chinese stock market crash in January, the impeachment of Brazilian president in April, the Brexit vote in June and Turkey’s failed coup in July.
Looking at the global insolvencies in 2016 in more detail, the top 10 insolvencies (by last known turnover in Euros) in Q1-3 were:
|Country||Company||Last Known Turnover||Trade Sector|
|South Korea||Hanjin Shipping Co. Ltd||5,730,000,000||Transportation|
|United States||Peabody Energy Corporation||5,000,000,000||Commodities|
|United States||Linn Energy LLC||2,600,000,000||Energy|
|Canada||Pacific Exploration & Production Corporation||1,880,000,000||Energy|
|United States||RCS Capital Corporation||1,863,000,000||Services|
|United States||C & J Energy Services||1,573,000,000||Energy|
|United States||Dex Media, Inc (2016)||1,350,000,000||Services|
|United States||Paragon Offshore Plc||1,324,000,000||Energy|
|United States||Republic Airways Holdings Inc.||1,192,000,000||Transportation|
Services, Retail and Energy were the top 3 trade sectors globally (by number of insolvencies) that suffered large insolvencies (of companies with turnovers of €50 million plus) in the same period. A further breakdown of trade sectors shows how others faired:
The forecast rise of +1% in insolvencies in 2017 is the first rise in seven years and can be broken down by region as follows:
Euler Hermes cite three main factors which explain the return of credit risk in 2017:
- Global growth and trade have hit a glass ceilings of +3% for GDP growth and +4% for trade volume.
- Global financing decisions conditions will experience a regime switch as the US increase interest rates further.
- The re-bound in large insolvencies will cause a domino effect on more fragile suppliers.
Whilst insolvencies are forecast to drop by -4% for Western Europe as a whole, the only major European country to see a sizeable increase is the UK with a forecast rise of +5%. Whilst UK insolvencies decreased by -3% in 2016, the expected reversal of the trend is mainly due to the economic slowdown with GDP growth of only +1% and the depreciation of the pound – the real effective exchange rate declined by -12% since June 2016.
So what can companies do to protect themselves against the forecast insolvencies? Acumen Credit Insurance Brokers are specialist brokers arranging credit insurance to protect businesses against bad debts caused by the insolvency or default of business customers, following the sale of goods or services on credit terms. Cover can be purchased for both domestic and export markets, and for either one, a selection, or all customers to whom you have extended credit terms.
Not only does trade credit insurance protect against unexpected bad debts, but reading the forecast for 2017 could put off a business from wanting to extend credit to businesses, particularly one never traded with before. However increased information on new and existing customers is just one of the many benefits afforded by a credit insurance policy which supports positive business growth. Contact Acumen today for more information or for a credit insurance quote.
Source: Euler Hermes Economic Outlook no. 1230-1231 | November-December 2016 | Business Insolvency Worldwide