Insolvencies increased again by 8 % in Switzerland in 2023
According to its latest insolvency forecasts, the world's leading credit insurer Allianz Trade expects global insolvencies to increase by 6 % in 2023 and 10 % in 2024.
Dwindling liquidity buffers and deteriorating profitability threaten many sectors
Several factors are behind the rise in bankruptcies. The recession in corporate sales is gaining traction in the face of reduced pricing power and weaker global demand: in 2Q2023, the sales recession is broad-based across all regions for the first time since mid-2020 (-1.9 % y-o-y). Combined with persistently high costs, this is putting pressure on profitability. As a result, the liquidity situation is deteriorating rapidly and is unlikely to improve before 2025.
Corporate insolvencies set to rise again worldwide
"Companies still have a significant amount of excess liquidity. In the eurozone, it is EUR 3.4 trillion and in the US, USD 2.5 trillion. However, these liquidity buffers remain heavily concentrated in the hands of large companies and in certain sectors such as technology and consumer cyclicals. Moreover, in general, most companies are not in a position to increase their cash through their operations in the context of prolonged lower economic growth. Overall, after +1 % in 2022, we expect global corporate insolvencies to increase again in both 2023 with +6 % and 2024 with +10 %," explains Aylin Somersan Coqui, CEO of Allianz Trade.
Higher interest rates put pressure on various sectors
The hotel and restaurant industry, transportation, and wholesale and retail trade are in a difficult situation in 2023 and are driving the rise in insolvencies. Other sectors are catching up quickly, particularly construction, where backlogs of work have almost been made up, especially in residential construction. "At the same time, longer-term higher interest rates are reducing demand in sectors such as real estate and durable goods, and will put pressure on solvency in highly leveraged sectors such as utilities and telecoms, in addition to real estate on both sides of the Atlantic. In addition, global working capital requirements (WCR) are currently at a record high of 86 days, more than +2 days above pre-pandemic levels. Higher interest rates make it even more expensive for companies to finance structurally higher working capital requirements, posing risks to sectors such as construction and machinery and vehicle manufacturing," explains Maxime Lemerle, senior analyst in insolvency research at Allianz Trade.
3 out of 5 countries will reach pre-pandemic level of corporate insolvencies by end of 2024
By the end of 2023, the normalization of corporate insolvencies will be complete in most Western economies, with 55 % of countries likely to see strong double-digit increases. These include the U.S. (+47 %), France (+36 %), the Netherlands (+59 %), Japan (+35 %), and South Korea (+41 %). Globally, three out of five countries will reach pre-pandemic corporate insolvency levels by the end of 2024, including large markets such as the US and Germany. On both sides of the Atlantic, GDP growth would have to double to stabilize insolvency figures, which will not be the case before 2025.
Payment behavior deteriorates again
"Against a backdrop of slowing global economic growth, payment terms are also likely to lengthen, exacerbating the rise in insolvencies in the coming quarters. Global days sales outstanding already exceed 60 days for 47 % of companies. An additional day of late payment equates to a $100 billion funding gap in the U.S., $90 billion in the EU, and $140 billion in China. With bank credit already drying up for SMEs, closing this funding gap could be a major challenge," explains Somersan Coqui.
Insolvencies in Switzerland have increased by 8% this year but after the record value last year, according to the forecast of Allianz Trade, insolvencies in Switzerland should not exceed a value of +4% in 2023. https://www.organisator.ch/de/management/finanzen_recht/2023-04-26/insolvenzen-in-der-schweiz-stabilisieren-sich-nach-rekordjahr-2022/
Switzerland recorded a record increase in insolvencies of +32 % in 2022 and, unlike many other countries, had already reached pre-pandemic levels at that time. With +8 % for 2023, Switzerland is 2 % above the global average, but has the lowest growth in insolvencies of all countries in Western Europe after Spain, which alone recorded a decline this year.
"For Switzerland, we are already expecting a decline in insolvencies in 2024, the only country in Western Europe with - 6 %. For 2025, we even forecast a minus of 10 %. This means that Switzerland is returning to normality faster than most countries," explains Jan Möllmann, CEO of Allianz Trade Switzerland.
Source: www.allianz-trade.ch
