Business insolvencies in Australia are set to rise 29% this year and 5% in 2024 as excess cash dwindles, leaving vulnerable companies “caught between a rock and a hard place,” Allianz Trade says. 

Local insolvencies soared 45% to almost 5000 last year, the latest Global Insolvency Report says. 

In New Zealand, the projections are for a rise of 21% this year and 8% in 2024 before falling 14% in 2025. In 2022, insolvencies rose 11% to 1645. 

"Most markets in Asia Pacific should keep on feeling the various negative impacts from the weaker regional and global environment, notably South Korea, Japan, Australia and New Zealand,” it said. 

Globally, insolvencies are set to jump by 10% next year, the insurer says, after a forecast 6% rise this year, as waning cash buffers and worsening profitability put many sectors at risk. Worldwide insolvencies rose 1% in 2022 and are projected to decline from 2025. 

Allianz Trade, which provides trade credit insurance, says a recession in corporate revenues is gaining traction amid lower pricing power and weaker global demand. In the second quarter, this was across all regions for the first time since mid-2020, with a 1.9% decline from a year earlier.  

"This combined with continued high costs is squeezing profitability. As a result, liquidity positions are worsening fast and not likely to improve before 2025,” the report said. 

Cash buffers remain highly concentrated in the hands of large firms, Allianz Trade CEO Aylin Somersan Coqui says, and in specific sectors such as tech and consumer discretionary. 

The most vulnerable corporates and sectors are hospitality, transportation and wholesale/retail, and other sectors are “catching up fast,” in particular construction. Global working capital requirements currently stand at a record high of 86 days, and higher interest rates also make it even more expensive for companies to finance, which poses risks for sectors such as construction, machinery and transport equipment. 

Just over half of countries are likely to see large double-digit insolvency increases, and three out of five countries will reach pre-pandemic levels by the end of 2024, including large markets such as the US and Germany.  

"GDP growth would need to double to stabilise insolvency figures, which will not occur before 2025,” the report said. 

Payment terms are likely to lengthen, and closing this financing gap could be a significant challenge for SMEs as bank loans dry up.   

See the report here.