Double whammy leads to insolvencies surge

Insolvencies are increasing amid the ending of pandemic fiscal support and a challenging economy

Insolvencies are surging. 2023 saw a year-on-year increase of 32%. While this year promises to be less severe, we still expect global increases in the volume of business failures, with stabilisation unlikely to happen before 2025.

Why are so many businesses going bust?

On a global level the increase in business failures is due to the convergence of two challenging issues. The first is the withdrawal of government funds put in place to support businesses during the Covid-19 pandemic. The second is the global economy, which has seen many businesses struggle with inflation-led price increases, and subsequent high interest rates.

Outlook for oil and gas markets

While global demand for oil has been increasing, this is expected to peak and start declining by the second half of the 2020s.

Global demand for gas is predicted to peak even sooner than oil, although demand is expected to continue to grow in Asia-Pacific, the Middle East and Africa until 2030, after which it should begin to decline.

Differences in insolvency rates across markets

While the coming together of two specific economic challenges is a neat summary of the global picture, there are significant differences in insolvency rates across markets. Economists Iulian Ciobica and Dana Bodnar explore these in more detail in the Atradius Economic Research, Insolvency outlook: post-pandemic adjustments or an adverse new normal?

One of the key indicators pointing to what levels of insolvency a country is likely to see over the next 12 months lies in its pandemic response. Specifically, if a market has largely returned to its pre-pandemic levels of insolvency, it is less likely to see high volumes of business failures this year. This is true even of markets that have returned to a ‘new normal’, where failure rates have been higher due to the levels of inflation and high cost of borrowing.

Which countries will have the highest rates of insolvency in 2024?

During 2024 we expect to see the highest levels of increases in business failures in Italy, Singapore, the Netherlands, Portugal, Poland and United States. This is because insolvency rates in these markets have not yet returned to the 2019 levels we used as a reference point.

At the other end of this spectrum, the countries where we expect to see decreases in the volume of failures include South Korea, Ireland, Canada and Finland.

The middle ground sees a range of markets where we expect insolvency rates to remain elevated for much of the year, before stabilising at least into the post-pandemic new normal.

Download our Insolvency Outlook report