Trade Credit Insurer Forecasts Sharp Rise In U.S. Business Bankruptcies

Bankruptcy

Trade Credit Insurer Forecasts Sharp Rise In U.S. Business
Bankruptcies

June 7, 2007 (OWINGS MILLS, MD) — The economic
downturn that began in 2007 will increase risks for companies and higher bad
debts, leading to a sharp increase in the number of U.S. business bankruptcies
this year, according to a report from the world’s largest insurer of trade
accounts receivable.

The Euler Hermes ACI Business Failures Index
includes a revised 2007 outlook, which now forecasts a 51% increase in U.S.
business bankruptcies for the year. This follows a spectacular but one-off
reduction in business failures in 2006, when the number of corporate
insolvencies dropped by 50% due to a change in U.S. bankruptcy
legislation.

“We are forecasting that business bankruptcies in the U.S.
will rebound in 2007 due to the slowdown in the economy, lower profits, and the
disappearance of the impact of the change in legislation,” said Euler Hermes ACI
Chief Economist Daniel C. North. “We anticipate a return to some 30,000
insolvencies this year.”

The U.S. economy continues to be effected
negatively by the housing market, said North. “Median prices on existing homes
have fallen for several months on a year-over-year basis, which is an
unprecedented event since house prices almost never fall; they have never fallen
for more than two months in a row in the 38 years that records have been kept,”
he stated. The continued deflation of the housing market bubble, combined with
the lagged effects of monetary policy tightening and the prospect of higher
gasoline prices, suggest that the economy will continue to slow throughout the
year.

“Indeed, the Commerce Department showed real Gross Domestic Product
grew at an anemic 1.3% in the first quarter, well below many economists’
forecasts,” North continued. “Housing dragged GDP down for the third consecutive
quarter, taking almost 1% off of the headline number. The data reflects our view
that the deflating housing bubble has been, and will continue to be, a
significant headwind on the economy.”

Globally, the Euler Hermes research
department is forecasting a 7% rise in business failures for 2007.

The
full version of the global report is available at the Euler Hermes ACI website
in the News & Publications section. Visit http://www.eulerhermes.com/usa/en/news_publications/index.html
.

The Business Failures Index was created by the Euler Hermes research
department to compare corporate insolvencies by country avoiding problems due to
different country definitions and taking into account the size of each country’s
economy.

Leave a Reply

Your email address will not be published. Required fields are marked *