In 2023, there were 169,496 corporate insolvencies registered in Western Europe (EU-14, UK, Switzerland and Norway). This represented an increase of 20.9 per cent (2022: 140,168 cases). Insolvency figures even exceeded the pre-corona level for the first time. This is the result of a study by Creditreform Wirtschaftsforschung.

“The insolvency situation last year was dominated by the recession. Inflation, interest rates, energy costs and the aftermath of corona have had a massive impact on many companies. We can now clearly see the effects in the figures,” says Patrik-Ludwig Hantzsch, Head of Creditreform Wirtschaftsforschung in Neuss, summarizing the development in 2023.

“In 2023, the number of insolvencies in Western Europe was higher than in 2016. The tighter financing conditions are putting a significant strain on companies' reserves. The central bank (ECB) dampened inflation with interest rate hikes, but also consumption and investment. As a result, companies were barely able to generate any income,” says Gerhard Weinhofer, Managing Director of Creditreform Austria.

Insolvency figures rose in most of the 17 Western European countries surveyed. Declines were only recorded in Denmark, Luxembourg, Spain and Portugal. The increase was particularly strong in the Netherlands (plus 54.9 percent) and France (plus 35.6 percent). In Sweden, Ireland, Finland, Norway and Germany, the number of insolvencies rose by more than 20 percent.

“2024 will see a continuation of last year's poor economic situation, which will lead to a further increase in insolvencies. In addition, the financial crisis in 2009 provides an outlook for insolvency trends in the coming years. Despite the economic recovery, the figures remained at a high level for a long time,” explains Hantzsch.

Trade and construction dominate

Insolvency figures rose at double-digit rates in all main economic sectors. The increase was particularly strong in trade (up 24.8 percent) and in the construction sector (up 21.7 percent), while it was more moderate in the service sector (up 16.2 percent). The rate of insolvencies accelerated in the manufacturing sector. The increase (plus 19.8 percent) was higher than in the previous year. Nevertheless, the figures in the manufacturing sector are still just below the 2019 figure.

“With more than 68,000 insolvencies in the service sector alone and a good 52,000 cases in the retail sector, insolvency activity in Europe is primarily characterized by these two economic sectors. Consumer restraint as a result of inflation and the high level of interest rates proved to be a burden for companies,” explains insolvency expert Weinhofer. Geopolitical tensions have also increased uncertainty and slowed the economy.

65,000 corporate insolvencies in Eastern Europe

Insolvency figures also rose in Eastern Europe, with Hungary largely responsible for the increase of around 8 percent. In total, almost 65,000 corporate insolvencies were registered in Eastern Europe in 2023 - compared to just over 60,000 cases in the previous year. The number of cases fell in six of the twelve countries surveyed. The largest declines were recorded in Croatia (minus 22.3 percent) and Latvia (minus 21.2 percent). In addition to Hungary, Estonia, Slovakia, Serbia and the Czech Republic also recorded an increase.

Weak earnings situation weighs on the economy

“After a slight recovery in profits in the previous year, the positive trend seems to be over again,” explains Hantzsch. An increasing number of companies made losses in 2022 or only achieved very low profit margins. For example, 21.5% of companies reported a negative EBIT (2021: 21.3%) and a further 25.9% of companies (2021: 24.9%) only had a bottom-line profit margin of less than 5%. Only 18.8% of companies were reported to have a very high profit margin of over 25% in 2022.

In contrast, companies' equity ratios increased in 2022. 48.3% - and therefore almost every second company - had an equity ratio of over 50% (previous year: 47.2%). A weak equity ratio of less than 10 percent was still recorded by 21.4 percent of companies (previous year: 22.0 percent).

“Far fewer companies are currently suffering from a weak equity ratio than 10 years ago. However, the currently expensive loans are making debt capital unattractive. As a result, the proportion of debt financing on balance sheets is falling and the equity ratio is rising. However, the persistently poor earnings situation is poison for corporate stability. The insolvency figures are likely to be driven up further as a result,” Hantzsch continues.

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Neuss, 14th May 2024