Good News For CFOs: Business Insolvencies to Decline 3% in 2018

The global economy is continuing to see a broad-based upswing in the economic cycle and this is translating into an improved insolvency outlook for 2018, says Amsterdam-based trade credit insurer Atradius.

In a report, the insurer forecasts the number of companies becoming insolvent to fall 3% in 2018 relative to 2017, when the number had fallen by 4%. Business insolvencies have been declining since 2010 -- they had risen by more than 25% in both 2008 and 2009, during the global financial crisis.

Atradius notes, however, that the pace of the decline has been slowing. "After years of cheap funding driving higher non-financial corporate debt, higher interest rates could reverese the downward trend in insolvencies," it warns.

End of easy money

Atradius flags the end of the "period of easy money" as a downside risk, especially in the US. Political risk, which can negatively affect confidence, is a red flag in Europe. 

For now, though, the insurer sees the insolvency outlook as still bright in the world's leading economies, including in Japan (see chart below). One notable exception is the UK, where insolvencies are expected to rise 4% this year because of uncertainty around Brexit. In contrast to other major economies, insolvencies in the UK ticked up by 2% in 2017. 

Insolvency outlook 2018

% change year-on-year