Trade credit insurance provider Euler Hermes projects global insolvencies to rise by 2% in 2013.
Euler Hermes forecasts a slight improvement in 2014 (-1%), with the exception of Europe, where the recovery is too slow to have much impact. However, by volume, the total number of 2014 insolvencies is expected to be 24% higher vs. the pre-crisis (2000-2007) average.
“For the full year 2013 we expect a renewed rise in our Global Insolvency Index, due to the prolonged global economic slowdown and corporate insolvencies remaining at a historically high level,” explains Wilfried Verstraete, chairman of the Board of Management of Euler Hermes.
This increase in insolvencies nevertheless masks two contrasting trends. On one hand there is the continued rise of insolvencies in three main regions: Latin America (+10%), Central and Eastern Europe (+6%), and Western Europe (+9%).
On the other hand, there is the continued decline in insolvencies in the North American region (-11%) due to GDP growth in the U.S. picking up slightly, and in the Asia-Pacific region (-4%) where intra-regional prospects have offered a cushion to the private sector.
2014: More favorable outlook for insolvencies
“We forecast a modest global economic recovery in 2014 at +3%, with brighter prospects in all regions,” says Ludovic Subran, chief economist at Euler Hermes. “As a consequence, most countries should see a drop in the number of insolvencies, although the decline will nevertheless remain limited at -1%, as measured by our Global Insolvency Index.”
The North American economies are expected to experience higher growth rates in 2014 (+2.9% in the United States, +2.5% in Canada) compared to 2013, which should contribute to a continuing trend of declining insolvencies in the region (-5%).
The Asia-Pacific region, where economic activity is expected to gather momentum in 2014 due to exports, should remain the second region to record a decline in insolvencies. However the rate will be less significant (-1%) as necessary economic consolidation is underway, especially in China.
For the other regions, with the exception of Africa and the Middle East, the trend is merely less unfavorable than in 2013. In Latin America, the slight economic recovery expected in 2014, tempered by persistent financial vulnerabilities, is only expected to see stabilisation in the number of insolvencies (0%).
Central and Eastern Europe will continue to suffer (+3%), notably from an insufficiently robust recovery in Western Europe, where insolvencies will increase slightly (+1%) given the still-challenging environment in several major countries (Belgium, Italy, Spain, The Netherlands).
“In spite of the slight improvement in our insolvency outlook, the total number of insolvencies will still be 24% higher in 2014 than during pre-crisis years,” concludes Wilfried Verstraete.