Insolvencies predicted to rise

20th October 2023

Allianz Trade predicts in its latest report  that UK business insolvencies in the UK will reach about 30% above pre-pandemic levels by 2025, with almost 30,000 insolvencies predicted for 2024 and 2025.

The rise in insolvencies is driven by the hospitality, trade, and manufacturing sectors, contributing to an estimated increase of 16% in 2023, or 3,900 additional insolvencies. In fact all sectors having largely surpassed 2019 insolvency levels, the resilience of UK businesses has been strained by  the successive shocks and challenges that have come from Brexit, the COVID-19 pandemic,  supply shocks following the Ukraine war, the energy crisis, the cost of living crisis, labour shortages, reduced bank lending, rising interest rates and, and persistent cost and wage inflation.

Most vulnerable sectors

The Sectors identified as most vulnerable to insolvency include hospitality, transportation, and wholesale/retail, with construction and other sectors close behind. Higher-for-longer interest rates are also reducing demand in sectors such as real estate and durable goods and will start straining solvency in highly indebted sectors like utilities and telecom, in addition to real estate.

Globally, the report projected that by the end of 2023, a majority of advanced economies will have normalised business insolvencies, with 55% of countries likely to witness substantial double-digit increases. Major economies like the US, France, the Netherlands, Japan, and South Korea are projected to experience significant increases. Globally, three out of five countries are expected to reach pre-pandemic business insolvency levels by the end of 2024, including significant markets such as the US and Germany.

Furthermore, should global economic growth slow even more, payment terms are expected to lengthen, with late payments causing a cash flow crisis and increasing insolvency rates even further.

Global Days Sales Outstanding already exceed 60 days for 47% of businesses. Late payments are going to be increasingly challenging and  will add pressure on financial stability. Maintaining healthy cashflow could pose a significant challenge, especially with bank loans being harder to secure for small and medium-sized enterprises (SMEs).

Allianz Trade CEO Aylin Somersan Coqui said.  “All in all, we expect two accelerations in global business insolvencies, with +6% in 2023 and +10% in 2024”