High interest rates and the termination of large-scale government assistance provided to companies during the COVID-19 pandemic have hit businesses in most developed economies hard, resulting in double-digit bankruptcy growth rates, the Financial Times reports.
Thus, the number of corporate bankruptcies in the United States for the fiscal year ended September 30 increased by 30% compared to the same period a year earlier.
In Germany, which is the largest economy in Europe, the number of bankrupt companies increased by 25% in January-September. Since June, double-digit growth rates have been recorded every month, the country’s statistical office said.
According to the EU statistics agency, the number of insolvent companies in the community countries increased by 13% in January-September and reached the highest level in eight years. In France, the Netherlands, and Japan, the number of bankruptcies in October increased by more than 30% year-on-year. In England and Wales, the insolvency rate in January-September reached its highest level since 2009.
The Organization for Economic Cooperation and Development recently reported that in a number of countries, including the Nordic countries of Denmark, Sweden and Finland, the number of corporate bankruptcies has exceeded the levels of the global financial crisis of 2008-2009.
The main negative factors are “the cost of debt servicing and the withdrawal of pandemic support, as well as high energy bills, especially in energy-intensive sectors,” according to Capital Economics Chief Economist Neil Shearing.
According to analysts, most bankruptcies were recorded in the transportation and hospitality industries.
Shearing warned that the trend of deteriorating solvency of companies will continue, as many businesses will have to refinance their debt at higher rates in the coming months, even though central banks are expected to have already reached their peak.
The surge in bankruptcies will put pressure on global economic activity and job growth over the next few years, experts say.
The international rating agency Moody’s expects the number of defaults of companies with speculative grade ratings in the world to continue to grow in 2024 after it already exceeded the average for recent years in October.
German insurer Allianz predicts that the global insolvency rate will reach 10% next year, up from 6% in 2023. The hospitality, transportation and retail sectors will be most affected.
“We are seeing an increase in corporate bankruptcies in almost all countries,” said Maxim Lemerl, a leading analyst at Allianz Research.
The number of U.S. company bankruptcies in January-July 2023 reached 402, the highest number for the period since 2010, excluding the “covid” 2020, according to a report from S&P Global Market Intelligence.
“High interest rates and a troubled operating environment continue to drive the collapse of U.S. companies,” the analysts wrote.
The number of bankruptcies in the seven-month period is nearly double the rate for the same period in 2022. In January-July 2020, the figure was 407 as the coronavirus pandemic caused many firms to close.
In July alone, 64 companies filed for bankruptcy in the U.S., the highest since March’s 70. The largest of them was the aircraft leasing company Voyager Aviation Holdings LLC, which owes more than $1 billion. In June, there were four companies with debts of more than $1 billion that filed for bankruptcy.
