The United States’ continued economic slowdown — coupled with increased costs of doing business — will cause the number of American business bankruptcies to rise this year, according to Euler Herms ACI, a credit insurer firm. Following a business failure rate in 2006 that was the nation’s lowest since 1980, the number should rise by approximately 12% in 2007.
In 2006, the Euler Hermes Business Failures Index registered a 30% decline in business bankruptcies. Euler points out that this was due to a correction for the exceptional 14% surge in insolvencies from 2005 — an increase due mainly to action by many businesses that were anticipating the new bankruptcy laws that took effect in October 2005. High business profits in recent quarters helped trim the number of business bankruptcies in 2006 adds Euler.
The exceptional impact of the changed bankruptcy legislation on the number of business failures should gradually blur throughout 2007, and the numbers should return to a trend more consistent with the U.S. economy and with the financial state of businesses, predicts Euler.
Globally, the outlook for 2007 is less promising than that of 2006, given the worsening cyclical economic picture. GDP growth should slow by 0.5% to 1.0% in most countries, taking world growth from 3.7% in 2006 to 3.0% in 2007, explains Euler. Overall, the global bankruptcy figure — based on forecasts for the 33 countries in the study that account for 83% of the world GDP — should increase by 4% in 2007 said Euler.
Source: Industry Week