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The global outlook for insolvencies should be better in 2018 than in previous years but there could still be some difficulties, an expert has said.
Mark Hoppe, managing director of credit insurer Atradius’s Australian and New Zealand operations, said that the outlook for the coming year has been boosted by improved economic conditions.
“The improving global economy means a better insolvency outlook for 2018,” Hoppe said. “Last year’s trends of strong industrial production growth, rising international trade and investment, and strengthening labour markets are expected to continue through 2018.”
Hoppe said that the global economy is currently in a “sweet spot” of broad-based economic growth alongside low interest rates which should support a 3% drop in insolvencies over the coming year.
“This is the ninth consecutive year of improvement, with the United Kingdom (UK) the only notable exception to this trend,” Hoppe continued. “However, the downward trend is beginning to bottom out and downside risks are rising as the period of easy money is coming to an end, especially in the United States.
“Moreover, political risk remains a concern for Europe, which could negatively affect confidence.”
Hoppe noted that, following a decade of recovery from the Global Financial Crisis, the pace of insolvency decline is expected to slow to 3% in 2018 after hitting 4% in 2015 and 2016.
“It is uncertain how long the current sweet spot will last as higher inflation accompanies stronger growth across many advanced markets, possibly raising the pace of global monetary tightening,” Hoppe continued.
“After years of cheap funding driving higher non-financial corporate debt, higher interest rates could reverse the downward trend in insolvencies.”
