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New sources of distress in the global economy have led to a surge in business failures throughout global markets.
After previously anticipating a global reduction in the rate of insolvencies in the region of 5% earlier in the year, our team of international economists are now pointing to a rise in bankruptcies. Somewhat soberingly they note that insolvencies are increasing across all of the world’s major trading regions and they have had to revise their April projections upward.
To be fair, the 5% downward projection came with the assumption that inflation would be kept under control and the caveat that we needed to wait and see how the US tariffs would impact markets and their economies.
So what are the main reasons for this change of course? As identified in the latest Insolvency Outlook, the three major factors are: the persistence of challenging economic conditions, the drag on growth caused by the US tariffs and trade uncertainty, and legislative processes in individual markets.
How stubbornly persistent economic challenges are a threat to global businesses
Insolvencies are a lagging indicator, usually suggesting an economic downturn has occurred rather than anticipating the onset of one. As noted by our team of economists, Ona Čiočytė and Iulian Ciobica, led by Senior Economist Theo Smid, the adverse conditions that caused the surge of business failures in 2024 are still lingering.
Specifically, these included inflation-led high input costs, inflation-tackling high interest rates and the impact of the withdrawal of pandemic-era government support. This appears to be the main culprit behind many of the insolvencies seen this year (and likely to continue to the year-end) in Asia Pacific and several European countries including Austria, Finland, France, Germany, Ireland and Sweden.
There is light on the horizon. The current trend of improving economic conditions, along with the fact that the weakest firms will have already left the market, means that insolvencies in these markets should now begin to decline.
How US tariffs and trade uncertainty can be linked to insolvency levels
It would be wrong to point to the current US tariffs as the main cause of growing levels of insolvency. For example, Canada is on the frontline of many of the tariff volleys, yet we expect to see insolvencies decline here during 2025 and 2026.
However, the tariffs and the uncertainty that has come with their erratic implementation do affect international trade and business confidences. We will have a clearer picture in the coming months as to the extent the tariff increases are affecting business growth, as they tackle the rising tariff-associated costs and, for many businesses, pause capital investment.
To date, the global economy has shown resilience in the face of the tariffs, but much of this is due to businesses front-loading trade in a bid to cross borders before individual tariffs come into effect. We will know more once the dust has started to settle in 2026. Currently we expect to start seeing the negative impact of the tariffs on insolvencies then, especially in the United States.
How legislative processes and local economic conditions have led to a surge in insolvencies
It is not just challenges in the global economy that can destabilise businesses and lead to increases in insolvencies. As Theo and the team note in their report, Switzerland and Finland are facing increases in insolvencies following legislative changes to bankruptcy laws for the former and VAT levels for the latter.
South Korea is facing an insolvency spike following a local economic slowdown. Germany saw its highest levels of insolvency in ten years during the first half of 2025, largely due to a persistently slow economic recovery, peppered by weak demand.
What does the future look like for global insolvency levels?
Looking ahead at the bigger picture, we believe global insolvency rates will stay elevated for the remainder of 2025, followed by a gradual decline beginning in 2026. You can access the 2025 insolvency rates of the world’s major markets in our latest Insolvency Outlook, along with the identified trends and our predictions for 2026.