Where is a company most likely to become insolvent in 2016?

Insolvency is one of those business elements that will never leave us. Just as some companies thrive in the marketplace, others struggle, and some of them are always destined to become insolvent. While you may be forgiven for thinking that bad debt rates remain the same everywhere, that is simply not true. In fact, according to Atradius, the leading commercial credit insurer, there is an imbalance in the world economy that will cause some countries to have an increase in insolvent businesses and others to see the numbers fall.

In their latest insolvency forecast, they released their predictions for 22 major business markets, and while their overall forecast is for a drop in the number of insolvent companies in 2016, that drop will be extremely modest. However, the potential for a new global economic downturn and continued low oil prices around the world threaten companies. However, they remain with a forecast change of -5% in aggregate bad debts.

More interesting is the news that the total number of bankruptcies expected for 2016 is 67% higher than before the 2007 recession, and in some key countries it is surprisingly higher. Consider for a moment that Portuguese companies are 440% more likely to be insolvent than in 2007, Italian companies are 280% more likely, and Spanish companies are 250% more likely. Clearly, the economic recovery has not affected all nations equally.

The story extends to Greece, which had huge economic problems in 2015, culminating when its parliament accepted a euro zone recovery agreement. Understandably, 2015 saw a 10% increase in business failures, but 2016 is forecast for another 5% increase, making it a very difficult time to be a Greek company.

Countries like Switzerland, Luxembourg, Norway and New Zealand are expected to see no improvement in insolvency rates in 2016. While the UK will only see a 1% improvement in the number of insolvent companies, which is a dramatic drop from the 9% improvement. witnessed during fiscal year 2015.

All of this depends on a number of highly unstable factors in the global economy, particularly that of China. The country has published a series of revisions to its growth for the year and has had to suspend its stock market on numerous occasions due to sharp falls in its value. If China recovers from these setbacks, we could see a completely different kind of global economy, one that is growing well despite dire predictions.

Jason Curtis, Atradius Chief Commercial Officer, said in the report: “” The challenging external environment combined with low commodity prices is putting pressure on global markets, increasing the risk of insolvency despite strengthening national economies. This is a clear warning for companies to be vigilant about the risks of trading even as the economy recovers.

Despite improvements in insolvency statistics for the UK and Ireland in 2015 and improvements forecast again for 2016, the market remains challenging with bad debt levels still significantly higher than before the recession. Few companies can absorb the impact of a failed customer and companies must continue to protect themselves and have strong credit management systems in place. “