Trade credit insurance company Allianz Trade has released its latest ‘Global Insolvency Report’, unveiling updated forecasts for 2024 and 2025.

According to Allianz, global insolvencies are set to accelerate again this year before stabilising in 2025 at high levels. 

Insolvencies in South Africa have reached a record low, after dropping by 13% year-on-year in 2023, according to the report. The decrease marks the lowest number of cases in over 30 years and is a positive sign for the country's economy, it says.

Throughout the year, all quarters reported fewer insolvency cases compared with the previous year, indicating a consistent downward trend.

However, the report predicts that the economic inertia experienced since 2022 will have lingering effects this year, resulting in a relatively stable number of insolvencies.

It is expected that a moderate decrease will materialise again in 2025, driven by a substantial economic recovery.

“The overall resilience of firms and the economy has been commendable, considering the challenges faced.”

South Africa's real gross domestic product growth decelerated to 0.9% in 2023, a significant drop from the nearly 2% growth in 2022 and 5% in 2021.

One of the key obstacles hindering growth, it reports, is the lack of reliable electricity supply and logistics networks, which have been identified as the country's top risk in the Allianz Risk Barometer.

“This ongoing issue continues to impede businesses and households from reaching their full potential,” it says.

Meanwhile, the report warns that insolvencies may increase further owing to the absorption of margins for interest repayment and potential business interruption events triggered by the potential recrudescence of social unrest related to the electoral cycle.

“Despite challenges, the significant reduction in insolvencies is a positive development for South Africa as it reflects the resilience and adaptability of businesses in navigating the economic landscape.

“As the country works towards addressing the underlying issues affecting growth, there is hope for a brighter future,” says Allianz.

INSOLVENCIES
A high-speed and broad-based rebound in business insolvencies was recorded in 2023, and this year has seen insolvencies trending above pre-pandemic levels in most advanced economies.

The number of business insolvencies rebounded in three out of four countries in 2023, with most recording a double-digit increase.

Allianz reports sharp rises in the US – a 40% increase in 2023 – and in the Eurozone – an increase by 14% – with the Netherlands recording an increase of 52%, France 35% and Germany 23%. 

“The increase in global insolvencies accelerated by six percentage points in 2023 compared to 2022, moderated only by the declines seen in China – 14% – and emerging markets such as South Africa – 13% – and India – 8%.

"Western Europe remained a key contributor to the global rise in business insolvencies despite a slight slowdown. North America boosted the global rebound too, with a sharp acceleration.

“Another worrying factor is the rise in large business insolvencies, which could generate further non-payment risk for smaller suppliers. 2023 recorded one case per day globally,” explains Allianz Trade lead analyst for insolvency research Maxime Lemerle.

Allianz notes that lower growth, trade disruptions and geopolitical uncertainty have set the stage for another acceleration in global business insolvencies this year.

Allianz Trade thus expects a third escalation in a row this year – an increase by 9% – fuelled by a continuing increase in four out of five countries.

The largest increases are expected in the US, at 28%; Spain, at 28%; and the Netherlands, at 31%.

“This broad-based rise would push two out of three countries above their pre-pandemic number of insolvencies in 2024, from half in 2023. The after-shocks economy brings a large set of headwinds and challenges.

“These will now test the resilience of corporates that have become the most fragile over the past three years,” states Allianz Trade CEO Aylin Somersan Coqui.

Coqui expects that these developments will lead business insolvencies to settle at a high level in 2025, with an increase of 12% above their 2019 level in the US, an 8% increase in France and a 6% increase in Germany.

Allianz Trade, which operates in South Africa through the Allianz Commercial licence, does not expect a “tsunami of business insolvencies” as recorded in the aftermath of the great financial crisis, when global insolvencies increased by 17% and 19% in 2008 and 2009, respectively.

“However, the catch-up should be noticeable in several countries, in particular the advanced economies of Europe, due to specific firms – the most exposed to profitability and financing issues – and specific sectors – notably business to consumer-related sectors and construction,” it says.