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18 October 2023 – Business insolvencies are normalizing at a high speed
Most countries are seeing a sharp acceleration of business insolvencies in 2023. According to data available as of mid-October, the year-to-date number of insolvencies is showing an upward trend in three out of four countries. And most are seeing double-digit rebounds: 11 countries that account for 40% of global GDP registered a more than +30% surge in insolvencies (the US and Canada in the Americas; the Netherlands, Sweden and France in Western Europe; Poland and Hungary in Eastern Europe and Japan, Australia, New Zealand and South Korea in Asia). Our Global Insolvency Index¹ reflects this momentum, with another increase expected in Q3 2023 that would mark the sixth consecutive quarter of positive growth in year-on-year terms. We expect the Global Insolvency Index to jump by between +15% and +20% y/y, following a trend of +18% in Q2, +15% in Q1 and +10% in Q4 2022. This upside trend was expected² due to the combination of several factors, including the normalization process post Covid-19, weaker global demand and prolonged pressure on profitability due to higher input and financing costs, impacting mainly SMEs.
The few exceptions are mostly found in emerging markets. China, India, Russia, Turkey and South Africa, as well as a few countries in Central Europe (Bulgaria, Czechia, Latvia, Romania) and Asia (Singapore, Taiwan) are seeing a decline in insolvencies to various degrees (on average, the decrease remained stable at -13% y/y in the first half of this year). Overall, they account for a noticeable share of global GDP (24%) and thus our headline indicator (29%), even when excluding the special case of Spain where the strikes by court workers – now terminated – have created a backlog that is temporarily lowering the number of cases. To this regard, excluding Spain, the increase in insolvencies in Western Europe would have reached +22% y/y in the first half of 2023, instead of +19% as per our regional index.
Overall, the average increase in business insolvencies reached +42% y/y in the first half of 2023, from +32% in the second half of 2022, with a noticeable acceleration in Q2 (to 47% from +38% y/y in Q1).
Most advanced markets are already set to end 2023 with insolvencies back to pre-pandemic levels. At the end of 2023, the normalisation in business insolvencies will be complete in most advanced economies, in particular in Western Europe³, but also in Canada and Asia (Japan, South Korea). The two noticeable exceptions are the US and Germany, but they are expected to follow in 2024.
Looking ahead, a back-to-back acceleration is looming. We expect global insolvencies to further accelerate in 2024 (+10% y/y from +6% in 2023), compared to +4% expected previously, before somewhat stabilising with a limited improvement in 2025 (-2%). In both years, the global outcome would result from a broad-based dynamic. In 2024, a majority of countries (four out of five) would contribute to the upside trend, with a +9% y/y increase in simple average for the countries concerned.
The US (+22%), Italy (+24%) and the Netherlands (+28%) are set to record the largest increases. The global increase would push three out of five countries above their prepandemic number of insolvencies in 2024, from slightly less than half of them in 2023. In 2025, a majority of countries (four out of five again) would see a quasi-stabilization or a lower number of insolvencies, with a -7% y/y decrease in simple average for the countries concerned and the largest decreases in the small economies of Western Europe (Ireland, Nordics), alongside a few specific cases (Spain, Hungary, South Korea, Turkey). Source: Allianz Trade
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