“Services, construction, retail and textiles are expected to remain the most affected sectors in 2024 in Portugal,” the insurer reveals.
Insolvencies in Portugal are expected to grow by 19% in 2024 and 10% in 2025, according to Allianz Trade, which releases its latest Global Insolvency Report on Wednesday and reveals updated forecasts for 2024 and 2025.
“Services, construction, retail and textiles are expected to remain the most affected sectors in 2024 in Portugal,” the insurer reveals.
Portugal succeeded in maintaining a low level of insolvencies until 2022, with less than 2,000 cases annually, the lowest level in 15 years.
Allianz Trade explains that insolvencies observed between 2020 and 2022 decreased in many countries due to state support for companies in the COVID-19 pandemic scenario.
The insurer says that in this context, “normalization” was expected in 2023 with the end of support measures in some countries and in a scenario of weak global demand, prolonging the pressure on profitability due to increased production and financing costs.
Compared to 2016-2019 levels, it is possible to see that between 2020 and 2022, support measures saved the equivalent of three-quarters of insolvencies in countries such as the USA, Germany, Austria, Norway, Portugal and New Zealand.
According to the world's leading credit insurer, after two gradual recoveries in 2022 (+1%) and 2023 (+7%), global insolvencies are expected to accelerate again in 2024 (+9%) before stabilizing in 2025. (0%) at high levels.
The study reveals that the economic slowdown in 2023 has already reversed the upward trend in corporate insolvencies (+14% in one year).
“This particularly affected SMEs, particularly in the services sector, construction, retail and textiles, which remained the four hardest-hit sectors – together accounting for 60% of all insolvencies,” says Allianz Trade, which expects the fragile economy to continue to be dynamic. The pressure on the most vulnerable companies will continue, leading to a continued increase in corporate insolvencies in 2024 and 2025 (+19% annually and +10% respectively), reaching levels slightly higher than those observed before the pandemic.
“Insolvencies are (already) higher than pre-pandemic levels in most advanced economies,” Allianz Trade warns, adding that “as expected, 2023 saw a rapid and broad-based recovery in corporate insolvencies, and 2024 began with insolvencies higher than pre-pandemic levels. In most advanced economies.
In 2023, three out of four countries recorded a recovery in corporate insolvencies, leading to a 7% increase globally.
“Last year, the number of corporate insolvencies in every third out of four countries recovered, with the majority recording a double-digit increase. We saw sharp increases in the US (+40% in 2023) and the Eurozone (+14%), with the Netherlands (+52%), France (+35%) and Germany (+23%) are in the lead.”, reveals the study.
“The rise in global insolvencies accelerated by more than 6 percentage points in 2023 compared to 2022, a figure moderated only by declines in China (-14%) and emerging markets such as South Africa (-13%) and India (-13%).” -8%),” according to Maxime Lemerle, chief analyst at Allianz Trade.
The official also says that “Western Europe continued to be one of the main contributors to the global increase in corporate insolvencies, despite a slight slowdown (+15% in 2023, -8 percentage points compared to 2022).”
“North America also led the global recovery, with a sharp acceleration (+41%, +43 percentage points),” adds Maxime Lemerle.
“Another worrying factor is the increase in bankruptcies of large companies, which may create more risks of non-payment for small suppliers. In 2023, one case per day was recorded globally (365).”
The company says the global insolvency acceleration is far from over, but the recovery is coming to an end.
Bankruptcies will accelerate in 2024
Low growth, trade disruptions and geopolitical uncertainty set the stage for another acceleration in global corporate bankruptcies in 2024, says Allianz Trade, which expects a third consecutive rise this year (+9%), supported by a continued increase in four out of five countries. The largest increases are expected to be in the USA (+28%), Spain (+28%) and the Netherlands (+31%).
“This widespread increase will result in two out of three countries reaching higher pre-pandemic insolvency levels in 2024, compared to half in 2023,” says Aylin Sumersan Kuki, CEO of Allianz Trade.
“The post-shock economy brings a host of obstacles and challenges. The resilience of companies, which have become more fragile in the past three years, will now be tested. We expect these developments to lead to corporate insolvencies reaching a high level in 2025: +12% above 2019 level in the United States, +8% in France, and +6% in Germany.”
Allianz Trade also says it “does not expect a tsunami of corporate insolvencies” such as those recorded in the wake of the Great Financial Crisis, when global insolvencies rose by 17% and 19% in 2008 and 2009 respectively. However, the recovery should be noticeable in many countries, especially in the more developed economies of Europe, due to specific companies (most exposed to profitability and financing problems) and specific sectors (namely B2C and construction sectors), Allianz Trade details. .
Allianz Trade therefore identifies 5 “reality tests” for companies in the coming years. The first is that a slowdown in profitability is imminent. “Before benefiting from the global recovery expected in 2025, companies will have to manage the slowdown in global demand. In many countries, the level of activity is unlikely to reach the minimum level needed to at least stabilize the number of insolvencies, according to Allianz Trade. The insurer says the euro area and the US will need +0.7 basis points in additional GDP growth, on average, in 2024-25 to stabilize the number of insolvencies.
The second point refers to the growing uncertainty, ranging from geopolitics to the increasing risk of default.
Allianz Trade says that after a series of changes in recent years, the 2024 electoral calendar will increase economic uncertainty, as countries representing 60% of global GDP head to the polls.
“This context will add a layer of complexity and risk to business operations, making it difficult for companies to provide accurate forecasts and business plans and creating fluctuations in factor costs,” the company says.
Moreover, regulation is also increasing, which may force companies to make costly additional efforts to comply, he adds.
“Our default risk score based on our private credit exposure reveals that businesses are increasingly concerned about default, with the index reaching its highest level since 2022,” Allianz Trade revealed.
Third, financing and liquidity conditions remain constrained.
“Companies will continue to face costly financing, with concerns persisting about their ability to absorb borrowing costs and easing pressure on overall profitability,” Allianz Trade says.
“At the same time, the limited availability of financing will expose the most vulnerable sectors and companies to risk, while the number of fragile companies remains evident in the United Kingdom (15%), in France (14%), in Italy.” (9%) and in Germany (7%).”
The new companies will face their first real test of their resilience. We expect the post-pandemic acceleration in business creation to drive the “expected” increase in corporate insolvencies.
In Europe, new company registrations were 14% higher in the period 2021-2023, compared to the period 2016-2019. Allianz Trade says that for these companies, 2024 will be the first “real” test of flexibility, “especially in the countries that witnessed the establishment of the most recent companies, which are France (+47%), the Netherlands (+28%), and Belgium (+14%).”
Finally, some sectors present higher risks to employment and the economy in general, the insurer says.
The sectors and companies most exposed to the risks of weak and prolonged demand and high and prolonged financing costs are those that depend on discretionary expenditures (factories, retail sales of non-essential goods, hotels and restaurants, tourism and other leisure activities) and labor. – Intensive activities (construction, land transportation, hotels, restaurants, healthcare, specific business services), as Allianz Trade expects.
“Construction and real estate companies, which have already registered clear jumps in Europe and Asia in 2023, will increase the national number of business insolvencies due to cyclical recession and business demographic reasons,” the insurer adds.
Therefore, Allianz Trade says, “a continuation of the recent pace will mean the bankruptcy of more than 16,000 companies in France, more than 7,000 companies in the United Kingdom, nearly 4,000 companies in Germany and 2,000 companies in Italy.”
