2023-12-18 16:13:10
Corporate bankruptcies are increasing at rates exceeding 10% in most major economies as borrowing costs rise and governments roll back the trillion-dollar business support measures they implemented during the Corona pandemic.
According to a report in the Financial Times newspaper on Monday, following a decade of decline, the number of American corporate bankruptcies rose by 30 percent in the 12 months until September compared to the same period last year, according to court data.
Germany, the European Union’s largest economy, said bankruptcies rose by 25 percent from January to September compared to the same period last year. The Berlin Statistical Office explained that since June, “double-digit monthly growth rates have been consistently observed compared to the previous year.”
Across the bloc, corporate defaults rose 13 percent year-on-year in the nine months to September, reaching their highest level in eight years, according to Eurostat, which specializes in data on European bloc countries.
High interest rates, coupled with the collapse of weak companies that survived government support in the era of the Corona pandemic, fueled bankruptcies, according to Capital Economics chief economist Neil Shearing, who noted that “the cost of debt servicing” and “the rollback of government support,” as well as “High energy bills, especially in energy-intensive sectors,” were behind the bankruptcies. Analysts said that the industries that suffered most from high insolvency rates include transportation and hospitality.
Businesses weathered the sharp downturn caused by the pandemic thanks to massive government support plans for businesses and households that amounted to more than $10 trillion, according to International Monetary Fund estimates for 2020 and the first four months of 2021. But since then, government support packages have been largely withdrawn.
Shearing warned that this trend is expected to continue, as many companies will have to refinance debt at higher rates in the coming months, even if central bank interest rate increases are expected to peak. Analysts say the rise in bankruptcies will affect global economic activity and job growth in the next few years.
In this regard, Susanna Streeter, chief investment analyst at asset management company Hargreaves Lansdowne, said that although the rise is partly due to the collapse of distressed companies, the concern is that the rapid tightening of monetary policy will also push more startups and small and medium-sized companies. “Promising projects are on the verge of collapse, which might have long-term consequences for growth.”
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