Surging Company Insolvencies in Western Europe: The Grim Reality (2023)
Significant surge in corporate bankruptcies observed across Western Europe - Western Europe experiences another uptick in corporate collapses
Combating the wave of company closures wave is proving difficult, with insolvencies soaring across 15 Western European countries in 2023. Here's a breakdown of the root causes and the hardest-hit sectors.
Patrik-Ludwig Hantzsch, head of Creditreform Economic Research, decried the region's struggle with a lackluster economic recovery. An intensified competition, according to Hantzsch, has triggered a "significant" surge in insolvencies. This upswing was far from the catch-up effect of the pandemic; it was a formidable challenge in its own right.
Germany, France, Ireland, Greece, and the Netherlands experienced the brunt of this rise, with Germany recording a 22.5% increase. Factors that squeezed businesses included skyrocketing costs, high financing expenses, and waning demand.
The construction industry faced the sharpest blow, registering a staggering 15.4% increase in insolvencies. A troubling cocktail of rising expenses, reduced demand, and gaps in supply chains has piled on the pressure. The sector's outlook isn't promising.
Curiously, within Central and Eastern Europe, corporate insolvencies also increased. However, a drastic drop in Hungary, once a hotspot for failures, noticeably dampened the overall figure.
Across the pond in the U.S., a 16.6% spike in insolvencies was also observed, despite modest economic growth. High interest rates and declining consumer spending continue to plague businesses, although numbers have yet to reach the pre-pandemic highs of 2018 and 2019.
Factors Behind the Insolvency Boom
- The saga of the past three years has been one of slow economic growth and hardship, particularly for countries like Germany.
- Energy prices and operational expenses have been on a steep climb, burdens that have proven particularly taxing on sectors such as the construction industry, courier services, and gastronomy.
- Consumer spending and demand have also taken a nosedive, impacting the revenues of small and medium-sized enterprises (SMEs).
- Geopolitical tensions have created a volatile environment, impacting supply chains and investor confidence.
- Post-pandemic challenges persist, with government support measures gradually being withdrawn and putting businesses under renewed stress.
The Consequences of Soaring Insolvencies
- Certain sectors, like construction, hospitality, and logistics, have faced greater vulnerability and struggled to keep their heads above water.
- The swelling number of insolvencies has had cascading effects on the job market and social safety nets, as well as resulted in dwindling tax revenues.
- Market confidence has plummeted alongside persistent insolvencies, further crippling economic activity.
Comparative Analysis with Other Regions
| Region | Insolvency Trends (2023/2024) | Notable Features ||------------------|---------------------------------------------------------------------------|----------------------------------------------------------------------|| Western Europe | A heightened number of failures: 190,449 cases in 2023 (+12.2% compared to 2022). | Predominantly SME failures, especially within the construction and hospitality sectors. || North America | A marked escalation, particularly among large corporations (technology, retail, real estate). | A different sectoral focus, with heavy corporate failures. || Africa | Some jurisdictions demonstrate lower insolvency rates post-pandemic (on a high base); maturing legal frameworks. | Improving restructuring mechanisms and lower absolute numbers. |
Notable Policy Responses
Innovative measures are being adopted across Europe to help businesses weather the storm. For instance, Luxembourg recently introduced the "Business Preservation Law," which aims to streamline preventive restructuring and early warning systems.
The Path Ahead
The road ahead remains a bumpy one, with further insolvencies anticipated in 2025. Uncertainty lingers, along with surging costs and weak demand, placing businesses across Western Europe under continuous pressure.
- Despite Patrik-Ludwig Hantzsch's efforts to combat the wave of company insolvencies in 15 Western European countries, there has been a significant increase in insolvencies, as declared by Hantzsch.
- Germany, France, Ireland, Greece, and the Netherlands have been the hardest-hit countries, with Germany recording a 22.5% increase in insolvencies.
- The construction industry, in particular, has faced the sharpest blow, with a 15.4% increase in insolvencies due to rising expenses, reduced demand, and supply chain gaps.
- Despite high insolvency rates, meaningful policy responses are being adopted across Europe, such as the introduction of the Business Preservation Law in Luxembourg, which aims to help businesses weather the economic storm.
