Economic research: Insolvencies surge during 2023
Global insolvencies surge this year as the world adjusts to pre-pandemic levels
The pace of insolvency increases is accelerating and higher business bankruptcies can be seen in almost every corner of the globe. In fact, most countries throughout the world can expect to see an increase in the number of business failures recorded this year. This is not a surprise. It is, sadly, a situation that Atradius has been flagging for a while now.
The process began building in 2022, where there was a 9% increase in the number of insolvencies during the previous year. However, the percentage of business failures has surged this year, and we expect a further increase of 34% in 2023 compared to 2022. While indicators suggest insolvencies will continue into 2024, the pace should lessen with a 19% year-on-year rise compared to this year.
Why is there such a big increase in business failures this year?
A large proportion of the insolvencies we are currently seeing are due to the post-pandemic adjustment process. Fiscal support and other temporary measures introduced by governments to support businesses through the pandemic have now been phased out.. We assume that many of the zombie firms created during the pandemic, (businesses that would have naturally failed without such government intervention), are now entering bankruptcy now that government support has been withdrawn.
In addition, many companies have been struggling in the face of challenging economic conditions, especially those that had emerged from the pandemic with high levels of debt. High interest rates are creating tighter lending conditions for many firms, and many are also facing slimmer profit margins in light of the high rates of inflation.
Which countries are reporting the greatest increases in insolvencies?
Hong Kong, the Netherlands, the United States, South Korea and Italy are showing the highest insolvency growth rates this year. The year started fairly slowly for the Netherlands, the United States and Italy, accelerating as each of the nations began adjusting back to pre-pandemic levels. For South Korea and Hong Kong, the increase in insolvencies could clearly be seen in 2022 and has continued with high rates this year, with zombie bankruptcies affecting Hong Kong in particular. In each of these markets, the return to normal is yet to take place.
Which countries are enjoying relatively low insolvency growth, or even declines?
Some countries experienced an insolvency peak in 2022 and have now settled at or above pre-pandemic levels. This includes Spain, Switzerland and the Czech Republic. What’s more Denmark, Belgium and Austria achieved normal levels of insolvencies in 2022.
What will global insolvency rates be like during 2024?
While future predictions are notoriously tricky, it is very likely that the current high rates of business insolvencies will continue into 2024. The good news in this otherwise bleak prediction is that the year-on-year percentage increase should start to ease off, with a rise in global insolvencies by 19% compared to 2023. That said we are not out of the woods yet. We could see a surge in bankruptcies in countries where the return to normal insolvency levels has not yet happened, such as Italy and Poland.
Some countries will start to see a decrease in insolvency levels next year. Switzerland is likely to return to levels closer to 2019. South Korea, Ireland and Denmark, should see 2023’s relatively high level of insolvencies reversed in 2024.
More detailed information on the global insolvency outlook for these countries and others can be found in the Atradius Economic Research on Insolvencies which you can download for free via the link below.
Senior Economist, Atradius