In a recently released insolvency forecast, global credit insurers Atradius warn that corporate insolvencies in advanced markets are set to rise by 1% in 2019 which is the first increase since 2009. Hence 2019 marks the end of an almost decade long period of recovery.
This estimated insolvency increase is in line with the easing global GDP growth momentum which is forecast to grow by just 2.7% in 2019. Europe is expected to have the largest increase in insolvencies at 2%, with the UK and Italy experiencing the most difficult conditions. North America and Asia-Pacific have slightly more stable outlooks with forecast rises of 0% and +1% respectively with risks stemming largely from trade uncertainty and a more difficult external environment.
The UK is expected to be at the eye of the insolvency storm with a forecast increase of 7% for 2019, which follows the substantial increase of 10% for 2018. This is the highest increase of all advanced markets with Brexit related uncertainty being a key factor. This is reflected in contractions in business investment for four consecutive quarters and the postponement of investment decisions also having an impact on supply chains. These effects are most severe in the construction and retail sectors and is expected to continue whilst both business and consumer sentiment remains low. Atradius warn that this forecast increase of 7% is based on an orderly Brexit, however the ongoing uncertainty over an agreed exit deal could see this figure revised.
Italy is expected to see a 6% increase in corporate insolvencies, driven mainly by the onset of recession in H2 of 2018. Switzerland and Sweden are forecast a 3% growth in insolvencies and the Netherlands, Germany, Austria and Norway are all looking at an increase of 2%. Luxembourg has a more positive outlook with an expected decline in insolvencies of 10%, however this does follow a 28% increase in 2018. Greece are forecast an 8% drop owing to its strongest economic performance in the last 10 years, and Spain are looking at a 5% drop thanks to employment growth and stronger consumptions. Insolvencies in the USA are forecast to remain at current levels but a decline of 1% is expected in Canada. Atradius also predict a 2% rise in Japan with decreases of 2% in Australia and 3% in New Zealand.
Senior Manager at Atradius, Simon Rocket, commented: “Uncertainty continues to dominate the economic landscape with an inevitable negative impact for trade. However, businesses cannot afford to stand still and therefore must find a way to navigate these challenging conditions. Risk is an inherent part of trade in any economic environment and goes with the territory. But, despite the current climate, opportunities for trade growth are still out there and can be seized with the right approach to risk management.”
“Equipped with comprehensive business intelligence and real-time expert insight into trading conditions in the market and by understanding the credit strength of their customer a business can move forward with confidence. Trade credit insurance has been supporting business in the UK for 100 years and plays an important role in defining a successful trade journey. At Atradius, we have continued to evolve our service and product to ensure we successfully support businesses; our unrivalled expertise and experience not only enables trade but also provides protection from the risks.”