Euler predicts significant increase in global business failures.(Euler Hermes ACI)

After a substantial increase in 2005 and a decline in 2006, the number of business insolvencies in the U.S. is predicted to climb once again in 2007, according to global trade credit insurer Euler Hermes ACI. Worldwide, the Index predicts that business failures will increase by 3 percent in 2007 on the heels of a global economic slowdown.

The Global Business Failure Index--created by Euler Hermes ACI to compare business failures by country, going beyond the national definitions and taking into account the size of the respective global economies--predicts an 8 percent increase in U.S. corporate insolvencies for 2007. The Index has fluctuated quite a bit in the past two years, showing a 14 percent increase in 2005 and a 5 percent decrease for 2006. The 2005 hike was caused by an increased number of businesses insolvencies in advance of the new bankruptcy laws, which took effect on November 17, 2005. However, the revamped bankruptcy code has caused a notable decrease in the number of corporate insolvencies for 2006, with the Index predicting a slight decrease in the number of businesses that will declare bankruptcy.

Dan North, Euler Hermes ACI Chief Economist, offered his view on the macroeconomic factors that can affect business failures: "The U.S. economy turned in a very strong performance in the first quarter as real Gross Domestic Product grew at a 5.6 percent annualized rate. However, GDP growth is expected to slow during the rest of the year as a result of three factors. First, the housing market which has supported the U.S. economy over the past few years is cooling off, providing less equity to finance consumer activity and reducing demand for household goods and services. Second, high energy prices, particularly for gasoline, are putting a drag on consumer activity. ...