Insolvencies in Asia Pacific are set to hike by 12% and 5% this year and next, said Allianz Trade recently.
According to the firm, China succeeded in keeping the official number of business insolvencies under control in 2022 (-13% y/y to 7,530 cases) despite a challenging year with multiple lockdowns and a large number of major failures.
However, business insolvencies in Asia Pacific should see a moderate increase over the next two years (+4% in 2023 and +5% in 2024) as the reopening has not erased all risks, notably in the real estate and construction sectors, the firm said.
The other countries in the region should also see more insolvencies due to the downside factors affecting the region (eg elevated interest rates and inflation), notably
Australia (+15% in 2023 after +45% in 2022), Japan (+12% in 2023 after +7% in 2022) and India (+36% in 2023 after +50% in 2022 due to the catch-up from the long suspension of courts), the firm added.
Global insolvencies
In addition, global insolvencies are set to rise by 21% in 2023 and 4% in 2024, the trade credit insurer pointed out.
Half of the countries are likely to exceed their pre-pandemic levels of insolvencies in 2023 while Allianz Trade’s Global Insolvency Index is set to continue rising in the next couple of years, the firm predicted.
Yet, this significant jump might not be sufficient for insolvencies to reach their 2019 levels, the firm said.
According to Allianz Trade, global business insolvencies might stay -5% below their pre-pandemic levels in 2023 and -1% in 2024.
This global trend masks significant local differences, the firm said.
Allianz Trade forecasts that half of the countries in its panel are likely to see insolvencies exceed their pre-pandemic levels in 2023, and 3 out of 5 in 2024. In a nutshell, most countries are likely to exceed their 2019 levels by the end of 2024.
Maxime Lemerle, Lead Analyst for Insolvency Research at Allianz Trade has the following predictions:
Insolvencies in Europe: The number of insolvencies to reach 59,000 in France in 2023 (+41% y/y), 28,500 in the UK (+16%), 17,800 in Germany (+22%) and 8,900 in Italy (+24%).
Insolvencies in US: There would be an increase of +49% in 2023 as a result of tighter credit conditions and an expected sharp economic slowdown, which would mean a return to 20,000+ insolvencies per year.
Insolvencies in Asia Pacific: China should see a moderate increase (+4%) as the reopening has not eliminated all risks, notably in the real estate sector.
While Asia and Latin America are the only two regions not seeing their insolvencies back to 2019 levels by 2024, the spillover of financial stability concerns has increased corporate risks while demand is likely to remain well below the minimum required to at least keep insolvencies in check, said Paul Flanagan, Regional CEO of Allianz Trade in Asia Pacific.
“The most fragile sectors and companies will be hit the hardest, such as those most exposed to the global slowdown; those benefitting less from China’s earlier-than-expected reopening; those in labor-intensive sectors and most exposed to recovery in wages; and those most exposed to rising interest rates,” he predicted.
