Insolvencies in the corporate sector have increased across the globe. Such a situation has not been seen since the financial crisis of 2008. A combination of weak demand, rising inflation, debt-ridden balance sheets and higher borrowing costs has sometimes had a negative impact on borrowers. Company executives and business partners have been affected. As a result, a new wave of rising corporate defaults has begun around the world, which will intensify in the coming days, said the Singapore based daily ‘The straight Times”.
The United States has seen the most bankruptcies in the first half of 2023 among companies covered by S&P Global Market Intelligence since 2010. Corporate in England and Wales face highest insolvencies in 14 years. On the other hand, Sweden has the highest number of bankruptcies in a decade. Germany’s bankruptcy rate rose nearly 50% year-on-year in June, the highest since 2016. Japan saw the highest number of bankruptcies in five years this year. Bankruptcies typically accelerate after a recession begins. In this case, businesses are collapsing even as the labor market and corporate profits are surprisingly resilient.
Interest rates are also likely to remain high as central banks try to keep inflation under control. Smaller companies, especially those with floating-rate loans, are more vulnerable to bank loan repayments. Also, the impact of higher borrowing costs will be felt quickly in the coming days. Big companies like Bed Bath & Beyond and Kika/Leiner have already suffered enough. This raises the risk that suppliers will not receive their fair dues, workers will lose their jobs and bank lending standards will tighten up. Even sectors like technology and healthcare are not immune from this risk. They are also causing market contraction and stress due to floating-rate debt and collateralized debt obligations.
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