Trade Credit Insurer Forecasts Sharp Rise In U.S. Business Bankruptcies

The Euler Hermes ACI Business Failures Index includes a revised 2007 outlook, which now forecasts a 51% increase in U.S. business bankruptcies for the year. This follows a spectacular but one-off reduction in business failures in 2006, when the number of corporate insolvencies dropped by 50% due to a change in U.S. bankruptcy legislation.

“We are forecasting that business bankruptcies in the U.S. will rebound in 2007 due to the slowdown in the economy, lower profits, and the disappearance of the impact of the change in legislation,” said Euler Hermes ACI Chief Economist Daniel C. North. “We anticipate a return to some 30,000 insolvencies this year.”

The U.S. economy continues to be effected negatively by the housing market, said North. “Median prices on existing homes have fallen for several months on a year-over-year basis, which is an unprecedented event since house prices almost never fall; they have never fallen for more than two months in a row in the 38 years that records have been kept,” he stated. The continued deflation of the housing market bubble, combined with the lagged effects of monetary policy tightening and the prospect of higher gasoline prices, suggest that the economy will continue to slow throughout the year.

“Indeed, the Commerce Department showed real Gross Domestic Product grew at an anemic 1.3% in the first quarter, well below many economists’ forecasts,” North continued. “Housing dragged GDP down for the third consecutive quarter, taking almost 1% off of the headline number. The data reflects our view that the deflating housing bubble has been, and will continue to be, a significant headwind on the economy.”

Globally, the Euler Hermes research department is forecasting a 7% rise in business failures for 2007.

The full version of the global report is available at the Euler Hermes ACI website in the News & Publications section. Visit http://www.eulerhermes.com/usa/en/news_publications/index.html.