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Company insolvencies in Western Europe: A drop of 7% expected in 2015

30 September 2015 Coface

Company insolvencies in Western Europe have seen two successive storms. The subprime crisis, which made insolvencies jump by an average of +11% in the twelve Western Europe countries studied, followed by increases of +8% in 2012 and +5% in 2013.

In its latest economic report, international credit insurer Coface, said there was an average decrease in insolvencies of 9% in 2014 and are expected to be 7% lower in 2015. While insolvencies continue to increase in Italy and Norway, there is a positive impact in the Eurozone in ten other countries (Germany, Belgium, Denmark, Finland, France, the Netherlands, Portugal, United Kingdom and Sweden).

Contrasting decreases depending on the country

Although there has been a marked improvement in insolvencies in 10 of the 12 countries studied (with the exception of Norway and Italy), the dynamics differ across countries. Most countries have not yet returned to their 2008 levels. This is all the more noticeable in the southern European countries of Italy, Portugal and Spain, where the continuing high levels of unemployment are dampening growth potential, says Coface.

However, the outlook is improving, mainly due to private consumption. The Eurozone’s GDP increased by 0.3% in Q2 2015, confirming the recovery. Coface forecasts that growth in the Eurozone is expected to reach 1.5% in 2015 and 1.6% in 2016, following on from 0.9% in 2014.

The Eurozone’s importing countries have also benefited from the depreciation of the euro and the fall in oil prices. However, a close watch should be kept on risks linked to slower growth in emerging countries.

Another challenge is the low level of investment in the Eurozone. In this area too, pre-crisis levels have not been reached (19.5% of GDP in 2014 against 23% in 2007). Despite more favourable financing conditions related to the fall in interest rates, investment has not really kicked off again.

Poor dynamism in relation to anticipated demand is discouraging business investment. As the rate of use of business capacity fell due to the crisis, it is delaying productive investment. However, there has been a modest recovery since the beginning of the year due to private consumption and an improved business climate.

2015 in line with 2014

For 2015, Coface predicts a further decrease in business failures on average of around 7%, for the twelve Western European countries.

This model includes such variables as business climate, investment and the number of building permits issued. The conditions for growth resuming in the Eurozone will be particularly favourable for the Netherlands, Spain and Portugal. The expected fall will be less marked in Germany (-2%) and in France (-3%).

Coface says Italy and Norway, the two countries that were in the red in 2014, will remain there in 2015. Business liquidations will continue to increase, for different reasons. In Italy (where liquidations are estimated to increase by +7% in 2015, following +11% in 2014), the insolvency risk is accentuated by the number of small businesses, less secure than other categories, combined with a slight recovery. In Norway, the world’s seventh largest oil exporter, the increase in insolvencies (+6% in 2014 and 2015) is in line with the fall in oil prices.

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