Atradius is predicting a large increase in insolvencies across some major economies in 2022 and 2023. It compares the level of insolvencies with pre-pandemic levels as during the pandemic insolvency levels were low due to Government support measures. The UK, Turkey, Switzerland, Czech Republic and Denmark have all seen insolvencies increased in 2022 to beyond pre-pandemic levels. In the UK the high insolvency levels are attributed to the ending of government support measures and Brexit.
Atradius is predicting a 2.9% growth in the World economy in 2022 and 1.7% in 2023. These are significantly lower than Atradius forecast in April 2022. It is predicting an average global inflation rate of 7.8% for 2022 and 4.8% in 2023 as energy prices have increased more than expected.
QBE warns that SME insolvencies in the construction sector are increasing and there are signs that larger companies are suffering. The challenges include losses made on fixed price contracts as costs of supplies increase. Hyperinflation turns into stagflation. According to the ONS the cost of construction work increased by 24.1% in the year to July 2022 and growth is expected to slow. In addition, with the 12-month grace period on Covid loan repayments coming to an end the Construction Sector is seeing a 2.5% default rate compared to an average 2% across all sectors.
On-line furniture retailer Made.com has appointed PriceWaterhouseCoopers as Administrators leading to 320 redundancies. The Administrators said that there were 12,000 customer orders that had been paid for but had not been delivered as they were still in production in Asia or were not ready to be delivered. Made.com were floated on the London Stock Exchange in June 2021 and were valued at £800 million. The brand has been bought by Next but they have not bought the workforce or the stock of furniture, lighting and homeware. During the pandemic sales soared as people spent more time at home, but recently households have cut back on spending on large items and deliveries have been hit by supply chain issues.
More details available on The Guardian website >
Large parts of the food and drink sector are suffering as customers try to cut spending and a shortage of workers has an impact. Data from accountants UHY Hacker Young shows a record 66% of the UK’s top 100 restaurant groups were making a loss and 1,406 UK restaurants closed their doors in the 12 months to May. Meanwhile the leaders of the 6 largest UK breweries have warned that pubs across the country would be forced to close due to soaring energy costs. The coffee and sandwich businesses which rely on city centre workers have been having a difficult time as more people work from home. Tourist numbers are also down due to train strikes.
One piece of good news is that import and export of food and drink have recovered to pre-pandemic levels.
Jehu construction based in Bridgend went into administration putting construction projects in Wales and the south-west of England in jeopardy. The company had been trading since 1935. The company blamed spiralling construction costs and inflationary pressures decimating cash reserves. Marc and Simon Jehu said they ‘had been hindered by fixed-price contracts it had struck before the pandemic with profit margins being wiped out by construction cost inflation spiralling by more than 25%’.
More background available on WalesOnline >
In the first half of the year, Allianz has seen a large increase in SME insolvencies across Europe. This looks set to continue into next year with insolvencies expected to increase year-on-year in 2023 in France (+29%), UK (+10%), Germany (+17%) and Italy (+36%). Allianz also expects steep increases in insolvencies in China (+15%) and USA (+38%).
The reasons given are that higher energy prices and rationing are likely to hit the profitability of European firms. The second reason is the effect of increased interest rates, higher wage bills and inflation. Finally, Government support action is only likely to partially offset the impact of recession.
There were 5,595 (seasonally adjusted) company insolvencies in England and Wales during the third quarter of 2022. This was a decrease of 1% from the previous quarter and an increase of 40% compared to the same period last year.
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