SOURCE: Euler Hermes ACI

June 23, 2005 13:00 ET

U.S. Business Failures Continue to Decline

PARIS -- (MARKET WIRE) -- June 23, 2005 -- The continued rise in interest rates is expected to dampen U.S. economic growth to below 3% in 2006 and slow the decrease of business failures across the nation, according to Euler Hermes, the world's leading credit insurer.

The Global Business Failure Index* created by Euler Hermes climbed steeply in 2001 with the global economic crisis before falling back in 2003. The acceleration of world growth in 2004 has led to a 5% fall in the global index. However, the economic slowdown that seems likely for 2005 could interrupt this downward trend, causing Euler Hermes economic experts to forecast that the global index will flatten out during 2005 and 2006.

Decrease in business failures around the world in 2004, except in Europe

The 5% decline in the Euler Hermes Global Business Failure Index is attributable to record world growth of 4%, supported mainly by the United States and Japan. In the U.S., where growth has remained very buoyant because of internal demand, business failures fell 2% in 2004. In Japan, a vigorous industry-led recovery has resulted in a drop of 16%. World growth was highly concentrated at the end of 2003 and the start of 2004 before weakening visibly under the effect of the rise in oil prices, the rise in U.S. interest rates and, in Europe, the continued rise in the euro.

By contrast, in Europe the recovery has remained mediocre and the failure level has remained high. Significantly, the business failure index indicates a rate of failure in Western Europe that is almost double that of the U.S. This high number of European business failures continues to represent a challenge to U.S. companies exporting across the Atlantic.

Slowing world economy brings stabilization of business failures in 2005-2006

The slowdown in the world economy suggests a change in the business casualty trend in 2005-2006. World growth should return to 3% in 2005 and maintain this rate in 2006. The decrease in business casualties observed over the past two years -- the Euler Hermes Global Business Failure Index fell 4% in 2003 and 5% in 2004 -- will give way to stabilization in 2005-2006.

* Euler Hermes has created a Global Business Failure Index, which compares business failures by country, going beyond the national definitions and taking account of the size of their respective economies.

"In the USA, a continued rise in interest rates is expected to dampen growth to below 3% in 2006 and slow the rate of business failures (-2% in 2006 against -4% in 2005). Japan seems to be suffering from an overall slowdown that should lead to a reversal in the positive trend of business failures, which we forecast will amount to an increase of 2% in 2005 largely due to a rise in new business creation. In Europe, average growth will be considerably below 2% in 2005 (1.3% for the euro zone) because of the loss in competitivity in the region and weak domestic demand. This should lead to a rise in business failures of 2 % in 2005. We can hope for a gradual recovery in Europe if the euro and oil prices continue to fall, which would reduce the increase in failures to 1% in 2006." (Analysis by Philippe Brossard, Euler Hermes Director of Research.)

The list of business failure rates throughout the world is available as a separate document.

Forecast evolution of failure rates in 2005
        (Annual change in %)

Country         2005      2004
Portugal        12%        8%
Italy            6%        6%
France           5%        2%
Switzerland      3%        9%
The Netherlands  3%        4%
United Kingdom   2%       -7%
Western Europe   2%        0%
Spain            2%       -3%
Japan            2%      -16%
Greece           1%       20%
Austria          1%       12%
Germany          1%        0%
Hungary          1%        1%
Belgium          0%       -5%
Total Index      0%       -5%
Canada          -1%       -8%
South Korea     -2%        1%
Luxembourg      -2%        1%
Ireland         -3%       -4%
United States   -4%       -2%
Finland         -4%      -12%
Poland          -4%      -43%
Singapore       -5%      -10%
Hong Kong       -6%      -10%
Norway          -7%      -18%
Czech Republic  -8%      -16%
Denmark         -8%        5%
Sweden         -12%       -7%
Brazil         -19%      -23%

Source: National sources, forecasts - Euler Hermes
Euler Hermes is the worldwide leader in credit insurance and one of the leaders in bonding and guarantees. With 5,400 employees in 40 countries, Euler Hermes offers a complete range of services for the management of customer receivables and posted a consolidated turnover of 1.9 billion euros in 2004. The North American headquarters (Euler Hermes ACI) is in Owings Mills, Md. For more information visit www.eulerhermes.com.

Euler Hermes, subsidiary of AGF and a member of the Allianz group, is listed at Euronext Paris. The group and its principal credit insurance subsidiaries are rated AA -- by Standard & Poor's.

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