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Just when global insolvency levels are settling down and facing a healthy decline, we need to factor in a possible trade war.
After a period of stubbornly high insolvency rates, many businesses have been looking forward to a gradual easing into normalisation this year, followed a by a reduction in insolvencies by as much as 5% next year.
But this outlook does not account for the approach towards trade that US President Donald Trump has adopted during his second term in office, nor the wider economic implications of the tariff policies.
It is important to ask whether US tariffs will lead to an increased risk of insolvency. But it is not such a straightforward question to answer. Perhaps the globally subdued levels of inflation and current trend of interest rate cuts could be enough to keep businesses afloat regardless of trade tariffs.
For our latest Insolvency Outlook, our Atradius Team of economists comprising Ona Čiočytė, Iulian Ciobica and Theo Smid developed a baseline scenario and a downside scenario. The former tracks declining inflation and what insolvency levels we are likely to see in the world’s major trading markets. The latter looks at the adverse conditions of a full-blown trade war and how this could require a wholesale revision of our baseline figures.
What is the current baseline insolvency forecast?
2025 began with global insolvencies at a relatively high level. This represents a hangover from the recent challenging economic conditions where businesses had to deal with high input costs in addition to high financing costs. In some markets, including Australia, Ireland and Canada, businesses are having to repay Government Covid loans.
However from this point forward, the insolvency rate should begin to ease. Under the baseline scenario conditions for the global economy, we would expect to see a global reduction in the rate of insolvencies in the region of 5%. This forecast assumes inflation remains under control and, at very least, suggests that insolvencies should be on a recovery path from their peak in 2024.
How could US tariffs impact global insolvency levels?
Our modelling of the most recently imposed US tariffs and the reciprocal tariffs released in response, suggests a slowdown in global growth during 2025 and a further weakening in 2026.
It is this persistence of challenging conditions, including a slowdown in economic growth, that could translate into insolvencies for some businesses.
This will vary across markets, with some of the greatest increases likely to be seen in North America and Asia Pacific. Australia, Japan and the Canada are likely to see the greatest levels of insolvency growth over the coming two years, although much of this will be affected by the need to pay back Government loans rather than the tariffs.
However, we also need to put our forecast in the context of the 2024 peak in insolvencies, where we saw a 19% year-on-year increase. To put it bluntly, many of the businesses that were struggling last year have gone bust already. Under the baseline scenario we expect to see insolvency rates normalise. Under the downside risk scenario where global economic growth is hampered by the trade war, many markets will see insolvencies remain at a fairly high level.
Both the normalised baseline and downside risk scenarios contain uncertainty. New policy announcements are regularly coming out of the White House, each one affecting the parameters of our models. Of course, uncertainty in itself can also put pressure on businesses and will be especially challenging for those already feeling the squeeze.
However, this is not unusual nor limited to the United States. Jurisdictions throughout the world continually introduce policies that can have an impact on global economics. Our team of economists will continue to monitor global developments and share their insights. You can read how their insolvency baseline scenario differs to their downside risk scenario in our latest Insolvency Outlook.