Executive Summary
Trade rerouting and (energy) deflation have prevented tariffs from unleashing the wave of corporate insolvencies many feared. Since early 2025, the Trump administration’s sweeping import duties (11% effective rate in August; 14% likely by year-end) have reshaped global trade flows without triggering a surge in US insolvencies. Large firms were cushioned by foreign exporters’ price moderation and the widespread rerouting of goods through third countries such as India and Vietnam, which kept costs in check. Tariffs have also shielded US domestic firms against foreign competition. Over the first half of 2025, we estimate that tariffs contributed to decrease insolvencies by -4pps while a positive demand effect managed to offset most of the negative effects from increasing input costs for US firms, resulting in a modest +4% increase overall. Nevertheless, as mitigation strategies wear thin and tariff pass-through increases, while demand is expected to slow down, we foresee a catch-up of insolvencies in the next quarters. The US is likely to end 2025 with a +9% increase.
Countries whose economies lean heavily on exports could still feel the pinch. We find that decreasing exports leads to rising insolvencies in countries such as Canada, France, Spain and the Netherlands. In the worst-case scenario, Canada could face an extra 1,900 insolvent companies, France +6,000, Spain up to +2,900 and the Netherlands +700. In contrast, we find negligible impact from lower exports on corporate insolvencies in Germany, the UK, Italy and Belgium either due to diversified export markets, a higher domestic base or stronger financial positions.
We expect global business insolvencies to rise by +6% in 2025, and again by +5% in 2026, before a modest decline by –1% in 2027. Next year will thus mark five consecutive years of increases to reach a record high number of bankruptcies, +24% above pre-pandemic average. Year-to-date data already show significant increases across regions, particularly in Asia and Western Europe, with notable jumps in Italy (+38%) and Switzerland (+26%). Key economies show mixed patterns: Germany is likely to see +2,500 additional cases and the US +2,100, while the UK should stabilize. Large firms are not immune, with 327 major insolvencies recorded over the first three quarters of 2025 – one case every 20 hours, fueling the risk of domino effects. Looking ahead, regional divergence will persist in 2026, with the US and China respectively posting another +8% and +10% increase in corporate insolvencies and thus driving the bulk of the 2026 increase. In the meantime, Western Europe will already experience a modest decrease next year by -2%.
If the current AI-induced boom were to burst in a shock similar to the dotcom bubble of 2001-2002, we expect a surge of bankruptcies by +4,500 companies in the US, +4,000 in Germany, +1,000 in France and +1,100 in the UK. Over the last few years, business creation has accelerated, particularly in Europe where new registrations were 9% higher in 2021-2024 compared to 2016-2019, and in the US, where business applications are 36% higher. This proliferation of new businesses increases insolvency risks: startups typically face higher financial fragility, new entrants often employ aggressive pricing that pressures established firms and higher firm density during economic downturns creates more zombie companies. The potential for bankruptcies has particularly increased in countries where the number of new businesses is growing faster than business bankruptcies, including Italy, France, Portugal and, to a lesser extent, Belgium.
Watch out! Three cyclical tailwinds could turn to headwinds in the short to medium term and weigh on the insolvency outlook: growth, financial conditions and fiscal. First, resilient economic growth could remain stubbornly below the threshold needed to stabilize insolvencies. Based on historical standards, the US (+1.6% GDP growth in 2026) and Eurozone (+0.9%) would fall short (by +0.6pp and +0.3pp respectively) of the rates needed to prevent insolvency numbers from rising further. This persistent growth gap could intensify competition, erode pricing power and squeeze already-thin profit margins for vulnerable firms. Second, financing conditions could end up being tighter than expected, widening the gap between well-capitalized large companies and struggling SMEs. Stubbornly high interest rates would particularly strain debt-heavy and capital-intensive businesses, with credit-supply constraints potentially increasing insolvencies. Especially, easing financial conditions need to translate into higher credit flows and we estimate that credit would need to increase by about +2.5% over 2026 both in the US and Germany to stabilize the level of insolvencies in 2026 (vs +2.5% y/y in Q1 2025 for the US and +1.1% y/y in August for Germany). A similar increase would allow France and the UK to reduce insolvencies by a further -5pps and -2.5pps respectively. Finally, fiscally-incentivized sectors, especially in construction, which is still hampered by high interest rates dampening demand, could suffer from more fiscal discipline in public infrastructure or instance. Historically the sector accounts for approximately 20% of all insolvencies (17% in Germany, 18% in the UK, 22% in France, 19% in Italy). Similarly, the automotive sector is also on the watchlist, given the perfect storm of technological disruption and heightened competition. The sector is expecting subsidies to help cushion the shocks but cash-strained countries could be more reluctant to support.