Wave of bankruptcy hits companies in the US and other major world’s economies

Companies in advanced economies are seeing a rise in bankruptcies, as borrowing costs rise and government support, which had amounted to trillions of dollars for struggling companies during the pandemic, is reduced.

In the United States, and according to data from US courts, the bankruptcy rate of US companies increased by 30% during the year ending in September compared to the same period the previous year.

While Germany, the largest economy in Europe, announced that bankruptcies increased by 25% during the period from January to September compared to the same period in the previous year.

Data from the National Statistics Office in Germany indicate that this increase has continued at a rate of two months since June compared to last year.

In the European Union, insolvencies rose by 13% during the first 9 months of 2023, reaching an 8-year high.

France, the Netherlands and Japan also saw a more than 30% rise in bankruptcies in October compared to the same month the previous year.

This rise is attributed to multiple factors, with Capital Economics chief economist Neil Shearing pointing to rising interest rates and the collapse of zombie companies that survived thanks to support during the pandemic.

The high cost of debt service and the decline in support during the pandemic, in addition to high energy bills in consumption-intensive sectors, contributed to the exacerbation of the bankruptcy problem.

In this context, International Monetary Fund data revealed that companies essentially survived the contraction caused by the pandemic thanks to massive government support, but this support declined over time.

Analysts expect bankruptcies to be a factor that will pressure global economic activity and job growth in the coming years, and credit rating agencies expect the global default rate to continue to rise until 2024.