Gauteng Business News

Send  Share  RSS  Twitter  13 Jun 2012

GLOBAL INSOLVENCIES: Global Corporate Insolvencies Expected to Rise


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The constant decline in the economic outlook of Europe has forced European Credit Insurance Company, Euler Hermes to revise its 2012 outlook for global corporate insolvencies – a 3% rise is now predicted as opposed to an earlier expectation of a 5% fall. Of concern is the fact that global company closures remain at high levels following the 64% increasing rise seen in 2008-09. Geographically USA bankruptcies rose a cumulative 210% over 2007-09, those in the Eurozone by 90% over 2008-09 with Spain’s rising 465% over 2007-09, while the Mediterranean and Africa index leapt 241% over 2008-09 according to Euler Hermes figures.

“Only Asia has escaped relatively unscathed”, says Luke Doig, Senior Economist at Credit Guarantee Insurance Corporation.

A systemic break-up of the Eurozone cannot be excluded while Spanish banks scramble to recapitalize themselves as their borrowing costs soar. Apart from the all-but nationalisation of Spain’s 4th largest bank, Bankia, three savings banks namely Ibercaja, Liberbank and Caja3 – are said to be studying a possible merger which would create Spain's seventh-biggest lender. And as the UK re-entered recession, retail bankruptcies were recently reported to have risen 38% in the first quarter of 2012 compared to the first quarter of 2011.

Global Pressure for Banks to Regain Strength

We have to say our uneasiness on the outlook for the European economy this year and potentially into 2013 and the resulting impact on corporate health; are implying rising payment defaults and global insolvencies. Globally, banks are under pressure to restore strength to their balance sheets and growth forecasts are being trimmed across the globe as rising unemployment, poor opinion and weak demand cloud the horizon. A further pick-up in company closures next year may push the insolvency index very close to record highs.

The challenge for South African exporters is to select precise markets and sectors to ensure a better payment opportunity. Furthermore, shipping on open terms given such doubt is risky, especially considering the potential corruption from bank failures. Payment protection on a global scale among this unpredictability is principal in our opinion.

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