Bankruptcies in Europe to level off late next year at earliest -Scope

BERLIN (Reuters) - The number of companies in Europe that go insolvent will keep growing until at least late next year as higher interest rates and tougher financing conditions weigh on businesses, according to a Scope Ratings analysis seen by Reuters on Thursday.

Small businesses in sectors that are cyclical and sensitive, such as retail and construction, are facing the most pressure in the current economic environment, it said.

Bankruptcy declarations in the European Union reached the highest level since 2015 in the second quarter of this year, and available statistics indicate the rise in defaults has not come to a halt in the third quarter, according to the analysis.

While some of the rise in defaults is due to catch-up effects from the end of government pandemic support, increased macroeconomic risks, including higher interest rates and the refinancing wall, are the reason insolvencies will not plateau until the second half of 2024 and early 2025, Scope said.

European companies will be on the hook for about 8.2 billion euros ($8.71 billion) in additional interest payments in refinancing maturing capital-market debt next year, it said.

Those extra interest costs from durably higher borrowing rates are set to increase again in 2025 and 2026, it said.

Assuming a similar scenario for bank debt, extra annual interest paid in 2024 will grow to more than 40 billion euros.

"It is unlikely that inflation will have fallen far enough toward central banks' targets to provide any relief from looser monetary policy and lower rates before 2025," said the analysis.

($1 = 0.9414 euros)

(Reporting by Rene Wagner, Writing by Miranda Murray, Editing by Friederike Heine, Robert Birsel)