Global major insolvencies (companies with turnovers of over €50m) rose by 68% in the first quarter of 2017, according to a recent economic outlook by Euler Hermes†. The total number of major failures recorded in Q1 2017 was 74 companies, compared to 44 from the same period in 2016. The cumulative turnover of these businesses was €19.1bn. Out of the 74 failed companies, over 66% were in Europe which is more than double the figure in Q1 2016.
Insolvencies tend to be increasingly worrying major firms with a total increase of 43% over the last 4 quarters. This trend is particularly troublesome due to the huge negative spill-over that affects supply chains, sectors and economies all impacting smaller businesses in a domino effect.
The main culprit behind the sharp rise in large insolvencies was the Services and Retail sectors. These sectors recorded the highest number of major insolvencies in Q1 2017 which was 17 failures in the Services sector (+70% from Q1 2016) and 14 failures in the Retail sector (+180% from Q1 2016). This is a continuing trend as the Services and Retail sectors have consistently topped the insolvency rankings for the last 4 quarters. The cumulative turnovers of failed businesses in these sectors also rose significantly in Q1 2017 to €6.2bn for services (+579%) and €5.2bn for retail (+447%) with the three largest failures all occurring in the US.
Looking forward global insolvencies as a whole are estimated to rise by a modest +1% but within this figure there are many uneven regional trends. Insolvencies in Latin America, Africa and Asia-Pacific are looking likely to continue the persistent rise in insolvencies with +11%, +6% and +3% for 2018 respectively. Insolvencies in the US are going to plateau in 2017% (0%) but rise by +5% in 2018 thanks largely to rising interest rates. In Western Europe insolvencies are expected to fall in 2018 by -2% after falls of -16%, -12%, -7% and -5% in 2014 to 2017. However the majority of counties in the region are still registering more insolvencies in 2017 than before the crisis.
†Euler Hermes Economic Outlook no. 1235-1236 Summer 2017.