In 2022, the long-feared trend reversal in corporate insolvencies took place in Europe. After the Corona crisis years, in which companies were massively subsidized all over Europe, the reality of the market economy is gradually returning: many companies are not able to cope with the permanent crises in the long run. 139,973 company insolvencies were registered in Western Europe as well as Norway, Switzerland and Great Britain. That was an increase of 24.2 percent (2021: 112,686 cases). In Eastern Europe the situation is even more drastic.
Rise in bankruptcies
Inflation, lack of energy and other macroeconomic problems have caused the number of corporate insolvencies in Europe to rise significantly. In 2022, 139,973 corporate insolvencies were registered in Western Europe (EU-14, Great Britain, Switzerland and Norway). That was an increase of 24.2 percent (2021: 112,686 cases). In Eastern Europe, the number of corporate insolvencies increased by 53.5 percent. This is the result of a study by Creditreform Wirtschaftsforschung, Neuss.
Accordingly, European companies had to shoulder numerous burdens in the past year. These included the massive rise in prices for energy and raw materials, for example, as well as the significantly higher financing costs due to the turnaround in interest rates. The economy also weakened noticeably over the course of 2022.
“The end of the Corona pandemic marked the beginning of a brief economic upswing in Europe before it was stalled again by the war in Ukraine. The energy crisis that followed hit the economy almost unprepared and with full force. Many ailing companies could no longer withstand the multiple burdens," says Patrik-Ludwig Hantzsch, Head of Creditreform Economic Research in Neuss, summarizing the development of 2022.
“The surge in bankruptcies in Europe in 2022 followed two years of extremely low numbers. The insolvency development can therefore also be described as normalization and necessary development. Under the special conditions of the pandemic period, the risk of zombie companies grew,” says Gerhard Weinhofer, Managing Director at Creditreform Austria. Some catch-up effects are also reflected in the increasing insolvency figures of the last twelve months. Nevertheless, the pre-Corona level of corporate insolvencies in Western Europe has not yet been reached again.
In Western Europe, the number of insolvencies increased in the majority of the countries considered. Austria (plus 59.7 percent) recorded a significant increase, followed by Great Britain (plus 55.9 percent), France (plus 50.0 percent) and Belgium (plus 41.7 percent). The number of corporate insolvencies also increased in Switzerland, Ireland, the Netherlands, Spain, Norway, Finland, Sweden and Germany. A decrease in the number of cases is reported from Denmark, Luxembourg, Portugal, Italy and Greece.
“The trend reversal in the insolvency figures has been heralded. The end of the road has probably not yet been reached. The pressure remains on the boiler, so that increasing numbers can also be expected in the coming months," stresses Hantzsch.
Significantly more bankruptcies in retail
The number of bankruptcies increased in all major sectors of the economy. Retail (including the hospitality industry) recorded a significant increase with a plus of 34.5 percent, followed by construction with a plus of 24.7 percent. The number of cases in the service sector increased by almost 20 percent and by 13.1 percent in manufacturing.
"The reason for the noticeable increase in insolvencies, especially in retail, is likely to be the consequences of the difficult Corona period. In addition, the reluctance to consume as a result of record inflation is particularly affecting this economic sector,” explains insolvency expert Weinhofer. However, the energy crisis has affected all sectors of the economy and in 2022 led to the dynamism of insolvency events.
Wave of bankruptcies in Eastern Europe
In Eastern Europe, the number of insolvencies continued to rise. Seven of the 12 countries surveyed recorded more cases in 2022. The increase was particularly significant in Hungary, Bulgaria and Lithuania. A total of 60,010 corporate insolvencies were registered in Eastern Europe. The previous year's level (2021: 39,095 cases) was significantly exceeded. In Turkey, too, the number of insolvencies rose significantly to 24,303 cases (plus 41.4 percent).
Balance sheet figures: Corona dent overcome?
"The balance sheet figures show a slight economic recovery of companies in Western Europe after the deterioration in the first year of Corona," explains Hantzsch. Significantly fewer companies would have a negative profit margin. 21.3 percent of the companies still recorded negative EBIT in 2021 (previous year: 26.7 percent). A fifth of the companies (19.6 percent) achieved a very high profit margin of more than 25 percent. Equity ratios have also recovered somewhat. The proportion of companies with a high equity ratio of more than 50 percent rose by one percentage point to 47.2 percent. By contrast, the proportion of companies with a very low equity ratio fell to 22.0 percent.
“Despite the improved results, the company balance sheets still reflect the negative effects of the Corona period. The weak corporate stability is the point of attack for the next crisis," Hantzsch continued. Decreasing collection periods would provide suppliers and service providers with faster liquidity again.
Source: Creditreform Press Release