The ongoing deterioration in the economic outlook for Europe has impelled European credit insurance company Euler Hermes to revise its 2012 outlook for global corporate insolvencies from an earlier expectation of a 5% fall to a 3% rise.
Of concern, says insurer Credit Guarantee senior economist Luke Doig, is that global company closures remain at elevated levels following the 64% cumulative rise seen in 2008 and 2009, when bankrupt- cies in the US rose accumulatively by 210% from 2007 to 2009, and those in the eurozone by 90% between 2008 and 2009. Only Asia remained relatively unscathed.
“I am uneasy about the outlook for the European economy this year and potentially into 2013 as well as the resultant impact on corporate health, implying rising payment defaults and global insolvencies,” Doig notes.
Banks are currently under pressure to restore strength to their balance sheets, and growth forecasts are being trimmed across the globe as rising unemployment, poor sentiment and weak demand dampen positive forecasting, with a further pick-up in company closures next year potentially pushing the insolvency index close to record highs.
Doig adds that the challenge for South African exporters is to select specific markets and sectors to ensure a better chance of being paid.
“Moreover, shipping on open terms, given such uncertainty, is foolhardy, especially when one considers the poten- tial contagion for bank failures. Payment protection amid this volatility is para- mount,” he warns.
Meanwhile, Doig says that a systemic break-up of the eurozone cannot be excluded while Spanish banks are scrambling to recapitalise themselves as their borrowing costs soar. With the exception of the nationalisation of Spain’s fourth- largest bank, Bankia, three savings banks, namely Ibercaja, Liberbank and Caja3, are said to be considering a possible merger, which would create Spain’s seventh-biggest lender.
He adds that an additional contributor to the European economic unease is the economic downturn currently experienced in the UK, where retail bankruptcies have recently been reported to have increased by 38% in the first quarter of 2012, compared with the first quarter of 2011.