To The Moon

This is the summary of Allianz’s Global Insolvency Report dated 15 Oct 2024.

The source can be found in their website.

Observations:

• 2024 looks to be an uptrend for insolvencies.

• Allianz Research is expecting the insolvencies to reduce over the following years.

Summary: Global Insolvency Outlook

2024:

• Significant increase in insolvencies: Expected to rise by 11%, surpassing pre-pandemic levels in two-thirds of countries.

• Key sectors affected: Construction, retail, and services have seen the most significant impact.

• Large insolvencies are on the rise: Particularly in Western Europe, especially in the manufacturing sector.

2025-2026:

• Continued high insolvency levels: Slowing growth, geopolitical tensions, and tighter financing conditions will contribute to this trend.

• Job losses: Over 1.6 million jobs at risk in Europe and North America.

• Impact on specific countries:

  US: Increase in bankruptcies in 2025, followed by a slight decrease in 2026.

  Germany: Moderate increase in insolvencies in 2025, followed by a decrease in 2026.

  France and UK: Decrease in insolvencies in 2025 and 2026.

  Italy: Continued increase in liquidations in 2025 and 2026.

  China: Gradual increase in business insolvencies from low levels.

Overall Outlook:

• Persistent insolvency risks: While interest rate cuts may provide some relief, high debt levels and economic uncertainties will continue to pose challenges for businesses.

• High-risk sectors: Construction, retail, and services remain vulnerable.

• Job market impact: Significant job losses are expected in affected sectors.

Global insolvencies are continuing to rise in 2024, surpassing expectations. The trend is widespread across regions and sectors.

Observations:

Some countries of concern due to high insolvency of over 15% and strongly increasing Y/Y change of over 20% (in 2024) include countries such as Austria, Brazil, Canada, New Zealand, Singapore and Sweden.

Other countries with notable insolvency concerns include Germany, Ireland, Netherlands, USA, Australia, Colombia, Finland, France, Hong Kong, Japan, Morocco, South Korea, and Switzerland.

Note that this report was published on 15 Oct 2024 and thus, it is not conclusive for 2024’s insolvency rates. Can we breathe a sigh of relief as Allianz Research is expecting the insolvency rates from 2025-2026 to drop as per the first chart?

Key Points:

• Strong upward trend: The Global Insolvency Index has increased by 10% year-over-year.

• Double-digit increases: Many countries, especially in the Americas, Asia, and Central and Eastern Europe, are experiencing significant jumps in insolvencies.

• Sectoral impact: Most sectors are seeing rising insolvencies, with construction, transport, and wholesale trade being particularly affected in some regions.

• Persistent upward trend: Despite some softening in certain countries, the overall outlook remains positive for higher insolvency rates.

The report suggests that the current trend of rising insolvencies is likely to continue, driven by various economic factors and sectoral challenges.

Are these insolvencies leading to a global slowdown or recession?

The rising trend of global insolvencies, particularly in key sectors like construction, retail, and services, is a strong indicator of potential economic stress. A significant increase in business failures can lead to job losses, reduced consumer spending, and a slowdown in economic activity.

However, while a global recession is a possibility, it's important to consider other factors:

• Monetary Policy: Central banks around the world are actively managing interest rates to mitigate economic risks.

• Government Interventions: Governments may implement fiscal policies to stimulate economic growth and protect vulnerable sectors.

• Geopolitical Factors: Global geopolitical tensions and supply chain disruptions can also influence economic conditions.

(Most of the summaries above are done using Google Gemini - seen in Italic font.)

My investing muse

Things cannot be conclusive based on a singular article. Thus, it is important to consider some due diligence so that we can position ourselves in anticipation of changes in events. Market peaks and downturns are part of the business cycle. While we can enjoy the highs, there are also opportunities for tension and surprises.

It is natural that banks will be directly impacted by insolvency, and this can spill over to other sectors of the economy. Will solvency lead us to more slowdown in the coming days? Let us spend within our means, avoid leverage, and consider some hedging.

@TigerStars

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