According to Deutsche Bank’s annual research, corporate defaults will become more common. The bank predicts that default rates will peak in the fourth quarter of 2024, with the highest default rate reaching 11.3% for loans in the US and 7.3% in Europe.

The study found that the default rate on U.S. loans is near an all-time high, reaching a record 12 percent during the 2007-2008 global financial crisis and 7.7 percent during the dot-com bubble of the late 1990s. “Our cyclical indicators point to an impending wave of defaults,” Deutsche Bank economists wrote.

Meanwhile, The New York Times cited data from S&P Global showing that 2023 will be the year with the highest number of US companies filing for bankruptcy protection in more than a decade, as a series of economic difficulties severely affect companies that are already financially weakened.

According to S&P Global, 236 US companies filed for bankruptcy between January and April 2023, the highest number for the first four months of any year since 2010. The surge in bankruptcies was driven by a slowing economy, rising interest rates and persistent inflation. These three factors are challenging the business strategies of businesses in general and hitting heavily indebted companies especially hard. Meanwhile, businesses can no longer count on lifelines such as low-interest loans and pandemic-era government subsidies.

More than 230 American companies have filed for bankruptcy protection in the first four months of 2023, including the once-famous retailer Bed Bath & Beyond. Photo: The New York Times

Struggling companies began laying off workers last year to save money. But now they are running out of time. “Businesses that were struggling before the pandemic and before the end of low interest rates have reached their breaking point,” S&P Global’s research notes.

Discretionary companies are set to file more bankruptcies than any other sector in 2023. Bed Bath & Beyond and David’s Bridal are the two most prominent names in the consumer discretionary sector to collapse this year, followed closely by financial institutions, health care companies and industrial manufacturers.

Across the Atlantic, European companies are also seeing a worrying rise in bankruptcies. According to Eurostat, bankruptcies in the European Union (EU) rose by 2.8% in the first quarter of 2023 compared to the fourth quarter of last year, reaching the highest level since the third quarter of 2019, before the Covid-19 pandemic broke out.

Analysts say that rising fuel prices and a cost-of-living crisis have contributed to a surge in defaults across the EU. Another major pressure is the end of government support packages that have kept businesses afloat during the pandemic. Meanwhile, many countries are also struggling financially and are finding it difficult to extend the fiscal “boost” measures.

Joe Davis, chief economist at Vanguard, warned that bankruptcies will continue to rise this year as banks tighten lending. Financial conditions are expected to tighten further, in part because of the Fed’s interest rate hikes, which will likely force companies to cut costs, lay off workers and file for bankruptcy. And according to Allianz Trade Credit Insurance, this situation will not only occur in Europe and the US but will also increase rapidly on a global scale in the coming time.

NGOC HAN