Owings Mills, MD (PRWEB) July 25, 2006
After a substantial increase in 2005 and a decline in 2006, the number of business insolvencies in the US is predicted to climb once again in 2007, according to global trade credit insurer Euler Hermes. Worldwide, the Index predicts that business failures will increase by 3% in 2007 on the heels of a global economic slowdown.
(Note: To view charts related to the Business Failures Index, please request the full version of the release.)
The Global Business Failure Index – created by Euler Hermes to compare business failures by country, going beyond the national definitions and taking into account the size of the respective global economies – predicts an 8% increase in US corporate insolvencies for 2007. The Index has fluctuated quite a bit in the past two years, showing a 14% increase in 2005 and a 5% decrease for 2006. The 2005 hike was caused by an increased number of businesses insolvencies in advance of the new bankruptcy laws, which took effect on November 17, 2005. However, the revamped bankruptcy code has caused a notable decrease in the number of corporate insolvencies for 2006, with the Index predicting a slight decrease in the number of businesses that will declare bankruptcy.
Dan North, Euler Hermes ACI Chief Economist, offered his view on the macroeconomic factors that can affect business failures: “The US economy turned in a very strong performance in the first quarter as real Gross Domestic Product grew at a 5.6% annualized rate. However, GDP growth is expected to slow during the rest of the year as a result of three factors. First, the housing market which has supported the US economy over the past few years is cooling off, providing less equity to finance consumer activity and reducing demand for household goods and services. Second, high energy prices, particularly for gasoline, are putting a drag on consumer activity. Third, and perhaps most importantly, the Federal Reserve may have tightened monetary policy too far as reflected in the inverted yield curve, a strong indicator of a future slowdown. The effects of Fed tightening take a year or more to be felt, meaning that the US economy will be experiencing a drag from rising interest rates for at least another 12 months. These three pressures on the US economy will certainly put pressure on business failures throughout the next year.”
In the face of the changing domestic and global economic climate, recognizing and managing future risks becomes a priority for the nation’s business leaders. The predicted rise in business failures highlights the important role that trade credit insurance can play within the business environment, said Euler Hermes ACI Vice President of Marketing Keith Sherman. “A Euler Hermes ACI credit insurance program provides a valuable extension to a company’s credit management practices – a second pair of objective eyes when approving buyers, as well as an early warning system should things begin to decline so that exposure can be effectively managed,” he said. “And, ultimately, should an unexpected loss occur, the trade credit insurance policy provides indemnification, thus protecting the policyholder’s revenue and bottom line.” Euler Hermes ACI utilizes a proprietary database that monitors the credit worthiness of more than 40 million companies worldwide; this provides advance warning for policyholders and allows losses to be minimized in the event of a large corporate insolvency.
Further analysis of the Global Business Failure Index is available in the Euler Hermes Insolvency Outlook publication, which is available upon request.
Euler Hermes ACI is the US subsidiary of the Euler Hermes Group and the oldest and largest provider of trade credit insurance in North America. For more information about Euler Hermes ACI products and services, visit http://www.eulerhermes.com/usa.
Euler Hermes is the worldwide leader in credit insurance and one of the leaders in bonding and guarantees. With 5,400 employees in 43 countries, Euler Hermes offers a complete range of services for the management of customer receivables. The group posted a 2 billion euro turnover in 2005. The North American subsidiary (Euler Hermes ACI) is headquartered in Owings Mills, MD. For more information visit http://www.eulerhermes.com/usa.
Euler Hermes, a subsidiary of AGF and a member of Allianz, is listed on Euronext Paris. Standard & Poor’s rates the group and its principal credit insurance subsidiaries AA-.
Euler Hermes ACI Public Relations and Communications Specialist
Phone: (410) 753-0652