Global Insight, an economic and financial analysis firm, forecast that U.S. corporate bankruptcies are expected to increase by 17% in 2007, after falling by about 20% in 2006.
The majority of these increases are expected to occur in the metals, mining, and energy sectors, as well as in real estate and closely related industries, such as mortgage banking and residential construction.
The fallout from declining real estate markets will also affect areas of the financial sector, such as regional banks and mortgage-related institutions that have large exposure to the real estate markets, real estate brokers and developers.
The banking sector overall will be supported by continued economic expansion, albeit at a slower pace, and reasonably strong financial asset markets.
Nonetheless, there are growing pressures from an inverted yield curve and stiff competition for loans and deposits. Further, the growth rate of demand for new loans is expected to slow in both consumer and commercial credit in 2007.
The greatest improvement in credit quality in 2007 will occur in the telecommunication, utilities, insurance, and healthcare sectors, Global Insight predicts. Strong growth in profits and free cash flow contribute to the improvement in telecommunication services’ credit quality.
The healthcare sector is also expected to fare relatively well, due in part to its non-cyclical characteristics and driven by robust prospects for future earnings growth due to positive demographics, new technology and pricing power.
Source: Credit and Collections World