Allianz – Global Insovencies, 2023-25

The Allianz's report on global insolvencies highlights the challenges faced by vulnerable corporates in 2023, as excess cash dwindles and penalties become imminent. While large firms and specific sectors still have high amounts of cash, smaller businesses are seeing their net cash positions decline faster than economic activity. This has resulted in a more than 30% increase in business insolvencies in 11 countries, including the US, Canada, Netherlands, Sweden, France, Poland, Hungary, Japan, Australia, New Zealand, and South Korea. The ongoing profitability squeeze is putting pressure on corporate liquidity and solvency, with financing becoming more costly and less available. Corporate revenues are declining due to lower pricing power and weaker global demand, worsening liquidity positions. Operating costs are expected to remain high, with minimal relief from energy prices and a slow recovery in labor costs. Higher interest rates are also affecting the solvency of sectors such as real estate, durable goods, and those with high working capital requirements. The report predicts that payment terms will become increasingly burdensome, with global days sales outstanding already exceeding 60 days in 47% of firms. This delay in payments can have significant financial implications, with each day of delay equivalent to billions of dollars in different economies. Despite these challenges, the report does not expect significant changes in insolvency frameworks within the next two years to mitigate the rise in business insolvencies. Overall, the report anticipates a back-to-back acceleration in global business insolvencies, with a 6% increase in 2023 and a 10% increase in 2024. It is estimated that three out of five countries will reach pre-pandemic business insolvency levels by the end of 2024. The US, Italy, and the Netherlands are expected to experience the largest increases in business insolvencies in 2024. Stabilization of insolvency figures is not expected until 2025.