Trade Credit insurers Allianz Trade have predicted that Business insolvencies will skyrocket. They predict company insolvencies will rise by a huge 37% this year. This would see the UK become the first big European economy to reach pre-pandemic levels of corporate insolvencies.
Research suggests the dramatic rise in Business insolvencies will be driven by various factors. These are stated as being the withdrawal of Covid support schemes, rising energy and fuel costs, supply chain issues, Russia’s invasion of Ukraine and Brexit.
The company says the global factors will likely push business insolvencies up significantly in 2022, followed by a further 4% increase in 2023. The rebound in insolvencies in 2021 and 2022 is in contrast to the artificial low recorded in 2020. In annual terms, the trend reversal appears limited (+4% to 16,310 insolvencies in 2021) but conceals a massive bounce back in the last two quarters (+36% y/y in Q3 and +42% y/y in Q4, respectively) that gained even more in Q1 2022 (+96% y/y).
The cause is mainly due to voluntary liquidation proceedings and visible in sectors including utilities, construction, information/communication and business services. The UK stands out with a high share of fragile firms (17% compared to 12% in France and 6% in Germany) when looking at profitability, capitalisation and interest coverage recorded in 2021 financials.
Uk outpacing European counterparts
The UK will outpace its European peers for forecasted business failures, according to Allianz Trade’s research. It expects insolvencies to remain artificially low in Germany, France and Italy owing to ongoing state support as businesses contend with the impacts of the pandemic. Germany is expected to post a 4% increase in 2022, France 15% and Italy 6%.
While the UK will reach its pre-pandemic business failure level before its European counterparts, the trade credit insurer expects them to post sharper increases in 2023 as state support is withdrawn. It forecasts insolvencies will rise by 10%, 33% and 21% next year for Germany, France and Italy respectively.
Allianz Trade expects the war in Ukraine and ongoing lockdowns in China to be the biggest challenges to the global economy. It forecasts overall business insolvencies will increase by 10% in 2022 and 14% in 2023.
It predicts the US will post insolvency increases of 8% in 2022 and 23% in 2023, while China will record 1% in 2022 and 11% in 2023. One-in-three countries will reach their 2019 insolvencies level in 2022 and one-in-two in 2023, according to the research.
Business Insolvencies rise shines a light on macro challenges
Maxime Lemerle, Head of Insolvency research at Allianz Trade, said “Our forecasts paint a difficult picture for UK businesses, despite the resilience shown in recent years. In a sense, this year’s anticipated uptick in insolvencies is a case of the inevitable after the extensive government support provided since March 2020, but it also shines a light on some of the macro challenges facing the economy.”
“A quicker return to pre-pandemic levels of insolvencies compared to similar-sized economies will be a worry for both businesses and the government. Yet firms can mitigate the risks posed to them by being vigilant of late- and non-payments, taking regular check-ups on customers’ financial health and assessing the credit worthiness of new clients. The outlook promises to pose challenges for UK firms but they’re not impossible to navigate with rigorous financial management in place.”
The increase of Business insolvencies in the UK will not come as a shock to many analysts. Many forecasters had predicted a tidal wave of insolvencies and Small Businesses are especially vulnerable.