Article

Euler Hermes expects another 8% increase in company failures next year

The number of big corporate insolvencies surged in the third quarter as the global economic slowdown started to bite.

The IMF has warned that the world is in a “synchronised slowdown” and in October cut its forecast for global growth.

Now, figures from trade credit insurer Euler Hermes show that large companies — those with over €50m of turnover — are starting to feel the pain.

Trade credit insurance covers the risk that a company’s customers cannot pay for goods or services, so Euler Hermes follows corporate insolvencies closely.

The company says that there were 88 large corporate failures in the third quarter of the year, up 15 per cent on the second quarter.

“There has been a growth in insolvencies around the world,” said Fabrice Desnos, head of Euler Hermes in northern Europe.

Mr Desnos blamed a combination of a slowdown in global trade, rising input prices caused by protectionist measures such as trade tariffs, subdued consumer demand, and the growing impact of the internet on traditional business models.

One of the most high-profile insolvencies of the third quarter was Thomas Cook, the UK-based travel agent, which failed in September.

“It was about a tougher environment, and a failure to adapt quickly enough,” said Mr Desnos.

“The failure of a very large company like a Thomas Cook has a very big impact on the supply chain,” he added.

Retail, particularly in western Europe, has been a hotspot for corporate failures. Some 34 large retailers have failed around the world so far this year, half of which were in western Europe. The sector is also struggling in the US. Data on Friday showed that, although US retail sales rose in November, the increase was much less than economists expected.

Companies in the construction and services industries have also hit trouble, according to Euler Hermes data.

Euler Hermes forecasts that the trend will continue into next year. “We are expecting the economic environment to see a trough in the first quarter of 2020 and start to rebound from there . . . but it will still be a difficult environment for companies.”

Overall, the trade credit insurer expects an 8 per cent increase in corporate insolvencies this year, and another 8 per cent increase in 2020.

The problems are having an impact on the market for the trade credit insurance that Euler Hermes and others sell. “We are definitely seeing a trend for increased prices — it is very clear in the UK and in some other parts of Europe as well. It’s a natural consequence of the overall environment,” said Mr Desnos.

https://www.ft.com/content/1893c16a-1dc4-11ea-97df-cc63de1d73f4

Copyright © 2020, Bond-Pro, Inc. All Rights Reserved.