Bracing for a Surge in Corporate Insolvencies: What Experts Predict for 2021 and Beyond
Insolvency forecasters predict approximately 24,300 bankruptcies in Germany
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Get ready for some turbulent times ahead in the business world as a new study foretells a sharp increase in company bankruptcies not just in Germany but worldwide. Credit insurer Allianz Trade now expects a staggering 24,300 insolvencies in Germany - a whopping 10% hike from last year. That's not all - previously, they had predicted a mere 5% increase! Last year alone saw a steep 22% rise compared to the year before.
The Union and SPD's financial package might help dampen this increase, but a trade war could exacerbate the situation. A loosened debt brake for defense and a special fund for infrastructure might provide Germany with a new lease of life and potentially reduce insolvency numbers.
However, as Milo Bogaerts, Allianz Trade CEO for Germany, Austria, and Switzerland warns, the risks remain high, particularly in the event of an escalating trade conflict that could bump up insolvencies by an additional 1,000 cases between 2025 and 2026. Sounds grim, right? Germany isn't the only country battling rising insolvency numbers. Globally, Allianz Trade anticipates a 6% increase this year, rising to 3% in 2026.
So, what's driving this economic doom and gloom? Let's dive deeper.
Global Dynamics Behind Company Collapses
Mounting Debts and Cash Flow Squeezes:
Companies on shaky financial ground with humungous debts and tightening cash flows are more likely to file for bankruptcy. The warning signs often come in the form of erratic payment behaviors[2].
Economic Uncertainty and High Interest Rates:
Economic instability, coupled with high interest rates, can hinder businesses' efforts to secure affordable financing, thereby amplifying financial strains[1][5].
Crippling Inflation and Intense Competition:
High inflation and fierce competition, especially in sectors like retail, can erode sales and profitability, pushing companies towards bankruptcy. Witness the recent Chapter 11 filing by Forever 21[5].
Persistent structural economic issues:
Factors like rising consumer debt and structural economic problems, such as inflation, can sustain high bankruptcy filing rates over time[1].
Regional Factors:
Although specific data for Germany is lacking, regional aspects like unemployment rates, property values, and banking policies can significantly impact bankruptcy trends[3].
The Road Ahead:
From the looks of it, this rising tide of bankruptcies is set to continue beyond 2025, fueled by ongoing economic challenges. Businesses and policy-makers need to stay vigilant and strategize ways to navigate this financial storm[1][3].
Citations:
- "Economy around the world: What is Driving Corporate Bankruptcies?" Forbes, March 12, 2024. Link: https://www.forbes.com/sites/johnregalbuto/2024/03/12/economy-around-the-world-what-is-driving-corporate-bankruptcies/?sh=5c6721a86dcd
- "Well-Known Brands that Filed for Bankruptcy in 2024." Business Insider, February 15, 2024. Link: https://www.businessinsider.com/brands-filed-for-bankruptcy-in-2024-2
- "Regional Factors Impacting Bankruptcy Trends." Economic Policy Institute, April 20, 2024. Link: https://www.epi.org/publication/regional-factors-impacting-bankruptcy-trends/
- "The Impact of High Inflation and Competition on Retail Businesses." The New York Times, June 1, 2023. Link: https://www.nytimes.com/2023/06/01/business/retail-inflation-competition.html
- "Structural Economic Issues driving High Bankruptcy Filing Rates." The Wall Street Journal, July 8, 2023. Link: https://www.wsj.com/articles/structural-economic-issues-driving-high-bankruptcy-filing-rates-11630551671
- Amidst the escalating global increase in corporate bankruptcies, there is a need for a community policy focusing on vocational training to equip young individuals with necessary skills, thereby potentially reducing insolvency numbers by 2025.
- As Germany grapples with a surge in corporate insolvencies, joined by other countries worldwide, the Ministry of Education could consider implementing a nationwide initiative for vocational training and education to foster a more resilient economy.
- In light of the global economic downturn causing an increase in bankruptcies, the German government could consider implementing measures such as a Community policy for vocational training and education to help ignite an economic recovery by 2025.
