2 Global monetary tightening putting pressure on global trade and insolvencies

Declining consumer demand, higher input costs, and inflationary pressures, (driven mainly by energy and employment) costs weighed heavily on businesses during 2022.
Inflation seems to have peaked in the Eurozone, and in the United States, where price increases have slowed steadily since June (when inflation reached 9.1 percent) to 6.5 percent in December.
The slowdown in inflation recorded at the end of 2022 in both advanced and emerging countries should continue in the first half of 2023.
While a disinflationary trend seems to be underway, it is still unclear where the inflation will land and over what time horizon.
Against this backdrop of relative resistance in activity, labour markets continue to show resilience, with unemployment levels still historically low.
The outlook for the global economy remains bleak for 2023, in an environment that remains both risky and uncertain. The main source of concern remains the inflation trajectory since it will condition part of the economic scenario, in all developed countries.

*Out of 94 economies 34 advanced, 60 emerging

Sources: National Statistical Institutes, IMF, World Bank, Coface

Sources: Macrobond

Monetary tightening, whereby central banks have increased interest rates and reduced their balance sheet, has put a brake on inflation; but has also let to curtailing demand and GDP.
The Fed delivered a string of interest rate hikes in 2022 in its battle to curb inflation that had climbed to 40-year highs. The central bank's policy rate is currently in the 4.50 - 4.75 percent range. The New York Fed President recently stated that the right policy outlook for ending 2023 would be an overnight interest rate between 5.00 and 5.50 percent.
The European Central Bank raised rates by 250 basis points over the second half of 2022. Eurozone rate-setters raised the borrowing costs by another 50 basis points in February 2023 to 3.00 percent, after figures showed underlying inflationary pressures remained uncomfortably high.
In February 2023, the Bank of England announced a 0.50 percent increase in its base rate to 4.0 percent, with further potential increases fast approaching.
With current global inflation at 8 percent, central banks overall are expected to maintain high-interest rates to bring down inflation. Rates are expected to be brought back towards 3 percent as and when the inflation comes down.

There has been tangible evidence of inflation and interest pressures on company balance sheets from mid-2022, as soon as they began to manifest in payment delays and restructuring of debts. These are both recognized as precursors to an increase in insolvencies.
Despite a fall in inflation in the US and across EMEA, by the end of 2022, insolvency rates for insurers had returned to pre-pandemic levels.
Countries with low insolvency rates in 2022 (the US, Czech Republic, Italy, Netherlands, Norway, Poland, Russia, Sweden, Hong Kong, Japan, New Zealand, Singapore, and South Korea) are forecast to experience an increase in insolvencies during 2023.
In economies including Canada, Austria, Belgium, France, Ireland, Turkey, and the UK, insolvencies are set to increase in 2023 although at a slower pace than 2022.
The APAC region displays a trend that is consistent with all economies within the region. In contrast, The Americas and EMEA show insolvency rates varying country by country.

Sources: Atradius