Corporate insolvency
“Allianz Trade currently expects the growth trend number of defaults will persist longer than previously expected (with a record number of 4,700 cases in 2024, i.e. +5% y/y). The current readings of the number of insolvencies in individual months suggest that the improvement in the economy is too slowly translating into the condition of enterprises, as evidenced by their number in the first half of the year showing an increase of +7% y/y (2,403 cases), at the same time creating a base effect for the result for the whole of 2024,” we read in the Allianz Trade analysis published on Wednesday. – “Consequently, this will be the fifth consecutive year of growth in the number of insolvencies of Polish companies, and thus their record series (both in terms of the scale of the increase and its duration),” we also read.
In these industries it is the worst
The authors of the analysis pointed out that in the first quarter the dynamics of insolvency increased the most in construction and transport. In these industries, low turnover – resulting from the lack of new investments and transport volumes – is accompanied by constantly growing labor costs, exceeding 20 percent of their costs. The report indicates that at the end of Q2, the annual growth dynamics of the number of insolvencies in these sectors decreased by 7-10 percentage points compared to Q1. In turn, the dynamics of insolvencies in wholesale trade increased, reaching over 20 percent annualized after the first half of the year.
“This does not contradict the economic readings pointing to consumption as the main component of growth.. The insolvent wholesalers were mostly related to the trade in investment and construction goods (wood, construction materials, metal products, parts and machines) as well as consumer goods, but durable ones – which have recently recorded stagnant sales (furniture, interior design, electronics, RTV/AGD, clothing and footwear)” – said Sławomir Bąk, a member of the management board of Allianz Trade in Poland, quoted in the report. – “It was in wholesale trade that we recently had a group of insolvencies of the largest companies, although even so – not that large (in June – turnover in the range of up to PLN 100 million)” – he added.
The report indicates that in the manufacturing and services sectors, there has already been a year-on-year decline in the number of insolvencies, although the scale of this decline is single-digit, and their number is still higher than in 2022 and earlier. It was emphasized that the number of bankruptcies is definitely higher than in 2019 and 2020 – in the case of manufacturing, it is currently 3 times higher, and in the case of services, it is 5 times higher compared to 2020, and compared to 2019 – even 7 times higher.
Regions with the highest number of defaults
The report assessed that the problem of the scale of insolvent companies “does not seem to be really the greatest” in the provinces with the largest percentage increase in the number of insolvencies year on year (Lubuskie and Łódzkie, although in Opolskie yes – but not because of the scale of the increase, as discussed below). The scale of the increases in them results from a low base and they are in absolute terms of up to a dozen or so insolvencies more on an annual basis.
“Hence, despite the year-on-year increase of +only+ 9% year-on-year after the first half of the year, it is worth paying attention to Mazovia. Not only the absolute numbers are important – the highest in the country, but also their general invariability in May-June compared to other, similarly developed economic voivodeships such as Małopolskie, Śląskie or Pomorskie, where the number of insolvencies was already falling in those months. For example, in Silesia, there was a significant increase in the number of insolvencies in March-April, after which we saw a downward trend. It was similar in most other voivodeships,” we read in the report. “However, just as in Mazovia, it was in Wielkopolska and Opolskie – currently, it is in these three voivodeships that there is statistically the highest risk of an increase in the number of insolvencies based on the number of official publications from recent weeks (it is possible that other, because more up-to-date data could be provided when taking into account applications for protection from creditors or taking into account debt collection cases),” we read in the report.
Small and medium-sized businesses have the biggest problem
Allianz Trade analysts emphasized that in Poland, it is mainly small and medium-sized companies that are still insolvent. They are the worst at adapting to the rising costs of their services or products, as well as at the long-term switch to products and services with higher added value.
“In many areas, including the sectors of trade in basic necessities, services and food production, which are doing relatively well compared to the entire economy, we can observe a gradual concentration, taking over market shares by larger entities as they are better at optimizing costs. There is no turning back from this phenomenon, just like from the aforementioned higher labor costs – the weight of the economy will shift towards companies with, if not large, then at least medium-scale operations. There are currently no conditions in the economy for remaining for years at the level of a startup or a sole proprietorship on such a scale as in previous decades due to the indicated fundamental change in costs and availability of employees,” we read in the Allianz Trade report.
It was pointed out that on global markets we are observing a rapid increase in the number of insolvencies of large companies, including the largest ones.
“(…) every day we had to deal with at least one such insolvency and there are definitely more of them than in recent years before the pandemic (in 2023 there were 365 such insolvencies in the world compared to 270 in 2022). It is an open question whether in Poland, too, the accumulation of problems of small companies and export recipients will not lead to a domino of insolvencies of larger ones, before the expected market rebound comes at the end of the year, or… next year,” we read in the report. (PAP)