Are there too many zombie companies in the world? Report Ft
Bankruptcies increase due to high rates and the end of Covid aid hitting businesses hard. The issue of zombie companies seen by the Financial Times
Business failures are rising by double digits in most advanced economies, due to rising financing costs and governments draining trillions of dollars of support from struggling businesses, writes the Financial Times .
After a decade of decline, the number of business bankruptcies in the United States rose 30% in the 12 months through September compared with the period a year earlier, according to court data.
Germany, the EU's largest economy, said bankruptcies rose 25% from January to September compared with the period a year earlier. Since June, “double-digit growth rates compared to the previous year” have been consistently observed, statistics office Destatis said on Tuesday.
Across the bloc, business insolvencies rose 13% year-on-year in the nine months to September, reaching their highest level in eight years, according to Eurostat.
According to Neil Shearing, chief economist at Capital Economics, rising interest rates and the collapse of zombie companies that had survived on Covid-era government aid have fueled the trend.
Shearing cited “the cost of debt servicing” and “reduced pandemic support,” as well as “high energy bills, particularly in energy-intensive sectors.” According to analysts, the sectors most affected by rising insolvency rates are transportation and hospitality.
Businesses withstood the sharp downturns triggered by the pandemic thanks to massive government support programs for businesses and families, which amounted to more than $10 billion, according to IMF estimates for 2020 and the first four months of 2021. But since then the packages were largely withdrawn.
Shearing warned that the trend is set to continue as many businesses will have to refinance debt at higher rates in the coming months, even as central bank rate hikes are expected to have peaked.
Analysts say the surge in bankruptcies will weigh on global economic activity and job growth in the coming years.
Susannah Streeter, senior investment analyst at asset manager Hargreaves Lansdown, said that while the rise was partly due to the failure of “zombie” firms, “the concern is that the rapid tightening of monetary policy pushes even the most promising start-ups and SMEs over the edge, which could have long-term consequences for growth.”
Ratings agency Moody's forecasts the global speculative default rate will continue to rise in 2024 after reaching 4.5% in the 12 months to October, exceeding the historical average of 4.1%.
David Hamilton, head of research and analysis at Moody Analytics, said “credit [will be] materially more expensive than before or simply harder to obtain.”
Moody's cited the recent default of Rite Aid, which operated more than 2,300 pharmacies in 17 US states, and the distressed debt swaps of Belgian consumer goods firm Ideal Standard International and British business services firm Haya Holdco 2.
German financial services firm Allianz predicted the global growth rate of insolvencies will reach 10% next year, following a 6% increase in 2023.
“We see corporate insolvencies rising in almost every country in the world,” said Maxime Lemerle, chief insolvency research analyst at Allianz Research.
Bankruptcies in France, the Netherlands and Japan increased by more than 30% year-on-year in October, according to national statistics offices. The OECD group, based in Paris and made up mostly of wealthy countries, recently found that in some countries – including the Nordics, Denmark, Sweden and Finland – business failure rates have exceeded levels seen during the crisis global financial year 2008-2009.
According to the Insolvency Service, insolvencies in the January-September period in England and Wales also reached the highest level since 2009. So far, the industry-intensive hospitality, transport and retail sectors have been particularly affected. workforce, Allianz warned, according to which even the sectors most sensitive to interest rate increases, such as real estate and construction, should be put to the test.
However, energy subsidies and other measures will help keep many companies afloat, meaning the spike in defaults will likely not be as high as in previous corporate crises, analysts said.
Many companies have built up good cash reserves and secured low-cost financing when rates were low. The global economy is expected to continue growing and unemployment rates are historically low in most large economies.
“We're not saying we're facing a tsunami of defaults,” he said.
Analysts added that the number of bankruptcies remains modest by historical standards in major economies, including the United States, Germany and France.
(Excerpt from the foreign press review edited by eprcomunicazione )
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/primo-piano/ci-sono-troppe-imprese-zombie-nel-mondo-report-ft/ on Sun, 31 Dec 2023 06:19:41 +0000.