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Insolvencies to Rise in Developed Countries: Report

Reuters
Wednesday, 20 Feb 2008 | 10:04 AM ET

The number of insolvencies is set to rise in Western economies due to the global credit crunch and the end of housing booms in countries such as the United States, Britain and Spain, a report said on Wednesday.

The number of insolvencies in Western Europe is expected to grow by 5 percent in 2008, after dropping 11 percent last year, according to a report by Euler Hermes, the world's biggest credit insurer.

Insolvencies have remained at historic lows over the past few years as low interest rates and abundant credit helped struggling companies refinance their debt, avoiding collapse.

The situation is different now.

"The scene ahead is not catastrophic but we have to be very cautious because we have a change in the world economy that can have an effect on many countries," Nicolas Delzant, member of the board at Euler Hermes, told a news conference in Madrid.

The United States will suffer less this year, with an expected 5 percent increase in insolvencies, after seeing them soar by 50 percent last year, the report said.

European countries such as Italy, Hungary, Spain and the Britain will be worst hit, following strong economic growth during the past few years.

Developing countries such as Brazil and Poland are expected to have fewer insolvencies as their economies are still buoyant, the report said.

The counter effect from those countries is expected to leave the net global increase in insolvencies unchanged from last year, at 5 percent, in 2008, the report showed.

Housing Boom

In Spain and Britain, where house prices have practically doubled over the past few years, insolvencies are expected particularly among real estate and construction companies, the report said.

In Britain, insolvencies are forecast to grow by 8 percent this year, compared with a fall of 15 percent last year, the report showed.

In Spain, insolvencies are expected to rise by 10 percent, up from 6 percent last year, Euler Hermes said. Llanera, a real estate firm, collapsed at the end of last year with about 700 million euros of debt, the biggest insolvency in Spain ever, said Jose M. Cadenas, a risk director for Euler Hermes in Spain.

"The situation in Spain has changed violently after some very happy years," Cadenas said. "Private consumption is falling in Spain and I don't expect that to change this year. Consumers always anticipate the bad news."

Home prices could start falling this year in Spain, pushed by oversupply, tighter credit and higher prices and interest rates, Cadenas said.

"The slowdown could be worse than we think," Delzant said.

Insolvency Forecasts

Table

Insolvency forecasts:

COUNTRY 2008 2007

Italy 27% -50%

Norway 19% -1%

Spain 10% 6%

UK 8% -15%

Portugal 7% 11%

Denmark 7% 21%

Greece 6% -6%

Belgium 5% 1%

U.S. 5% 50%

Japan 5% 6%

GLOBAL 5% 5%

WEST. EUROPE 5% -11%

Ireland 4% -5%

France 3% 5%

Canada 3% 0%

Austria 2% -3%

Germany 0% -14%

Poland -4% -36%

Brazil -12% -26%

Slovak R. -37% -54%

Source: Euler Hermes