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2023. 04. 27.
Gazdasági elemzések

CEE insolvencies study

CEE Insolvencies study

Insolvency trends in the Central and Eastern European (CEE) region have been subject to various economic conditions, support measures and legal changes in last three years. Indeed, challenges started with the Covid-19 pandemic that triggered the economic downturn and officially implemented lockdowns, through a relatively prompt recovery with soaring demand and supply disruptions and then the economic impact of war in Ukraine. All of those developments brought concerns not only for macroeconomic activity and commodities markets but also the companies’ payment liquidity. Theeconomic volatility and fluctuations were confirmed by bumpy GDP growth rates. Indeed, while all CEE countries recorded negative growth rates in 2020 (with the exception of Lithuania where it was flat), 2021 brought mostly higher growth rates than a contraction pace recorded a year before. That helped to gain back the pre-pandemic nominal GDP level of CEE economies and the solid economy activity was continued also in the first half of 2022 despite materializing consequences of war in Ukraine. As a result, Croatia’s and Slovenia’s GDP growth exceeded 5% in 2022 while growth rates in Poland, Romania and Hungary were close to it. On the other hand, Estonia fell into recession with growth of -1.3%.

Macroeconomic volatilities were referred on the business side. As a reminder, the Covid-19 pandemic forced governments to introduce unprecedented measures to support households and companies. In terms of the latter it included moratoria on insolvency applications as well as various measures reducing consequences of pandemic impact on the liquidity situation of companies in order to save them from bankruptcies. Among other measures, those included exemptions and deferrals of taxation and social security contributions, furlough schemes, loans, subsidies and other financial assistance, guarantees, employees’ salary supplementary payments and facilitating and simplifying various administrative procedures. As a result, support measures contributed to the drop of business insolvencies in 2020 as shown on chart 2. The process of their termination was gradual and companies still benefited from them amid low interest rates in 2021. Then, the year 2022 brought mostly an increase of insolvencies as companies suffered from challenges, including high prices of energy, inputs, series of prompt interest rate hikes, the highest inflation in decades, the uncertainty related to the war in Ukraine with a close geographical proximity to the CEE region.

The total number of business insolvency proceedings in CEE countries covered by our analysis rose from 25,917 in 2021 to 36,090 in 2022, i.e. by 39.3%. Statistics in a number of countries confirm the regional trend – after a drop of business insolvencies in 2020, those proceedings started to increase in 2021 and then accelerating in 2022. As shown in chart 1, last year eight countries experienced a higher number of insolvencies than a year before (Bulgaria, Croatia, Hungary, Latvia, Lithuania, Poland,Romania and Serbia), and four countries recorded a decrease (Czech Rep., Estonia, Slovakia and Slovenia). The highest surge of insolvencies was recorded by Serbia and Hungary (+106% and +86%, respectively), while the drop of proceedings was the largest in Estonia (by -17%). At the same time, the increase of insolvencies in CEE last year made that several countries already exceeded the pre-pandemic level of proceedings recorded in 2019 (chart 3). That included mostly Poland, where a number of proceedings was strongly contributed by a surge of dedicated procedures implemented to support companies suffering from liquidity difficulties due to the pandemic. Although intended to be temporary, the measures were implemented into Polish law permanently
(see details on Poland’s insolvencies on page 18). Even despite such a surge, the insolvency rate in Poland i.e. the share of total number of proceedings in the total number of active companies reached 0.08%, meaning that only 8 in 10,000 companies in Poland went through available official procedures. Much higher insolvency rates were recorded in countries were the usage of insolvency procedures is more popular – those rates reached 1.5% in Hungary, 2.1% in Croatia and 6.7% in Serbia. Especially, nominal insolvency figures were diverse across the CEE region, as they were not only affected by their economic situations but also by the definitions of insolvency in specific countries (with amendments to insolvency laws, or more widespread use of insolvency procedures).

 

 

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