The industrial sector in Poland has been struggling with a downturn for over two years now. The PMI index for the industry has remained below 50 points, which is the boundary between growth and contraction in the sector, for 26 months.
It’s not just bad in Poland
The situation in industry is similar in other key European economies – for the eurozone, the manufacturing PMI fell to 45.6 points in July from 45.8 points in June. In Germany, the indicator fell to 42.6 points in July from 43.5 points, and in France it fell to 44.1 points (the lowest level in 6 months) from 45.3 points a month earlier. In Poland, the manufacturing PMI has remained at 45.0 points for two months.
The difficult situation in the sector is not without its impact on the financial situation of Polish companies operating in the industry. As the National Debt Register has informed us, their database currently includes almost 260 thousand industrial producers, whose total financial arrears amount to PLN 1.16 billion.
Last year was already difficult for the industry – according to data from the Central Economic Information Center, 691 companies from the industrial processing sector filed for bankruptcy or restructuring. This was almost 80 percent more than in 2022. The difficult situation that has persisted for over two years indicates that the current year may be equally difficult for companies, although the data does not show this yet – in the first half of the year, 343 industrial companies filed for bankruptcy, which is 49.6 percent of the full-year result from 2023.
Small companies are the most indebted
According to the KRD, as much as 60% of the total debt of manufacturing companies is attributable to producers from just six sectors: finished metal products (PLN 216 million), food products (PLN 150 million), repair of machinery and equipment (PLN 107 million), wood products (PLN 83 million), furniture (PLN 80.5 million) and rubber products (PLN 67 million). As you can see, the spread between sectors is very large, which shows that the crisis is hitting all segments of the Polish industry.
Looking through the prism of the size of enterprises, KRD data indicate that 58% of all industrial debtors are sole proprietorships. Micro and small companies account for almost PLN 0.5 billion of the total debt of the industry.
Which entities are the largest creditors of industrial producers? The debt is primarily awaited by secondary creditors, i.e. securitization funds, which bought liabilities mainly from banks and other financial institutions. The value of unpaid receivables against them amounts to over PLN 350 million. Banks and leasing companies report receivables at the level of almost PLN 320 million, energy companies at PLN 130 million, and trading companies at PLN 110 million.
Is there a revival coming?
Another problem for the sector is the large scale of late payments from contractors. This is a mutually reinforcing debt spiral. As many as 2/3 of manufacturing companies – the most of all industries – complain that they do not receive payments from their customers on time.
As Emanuel Nowak, an expert from the factoring company NFG, emphasises, this type of payment backlogs are burdensome primarily for the smallest entities, which are most sensitive to the loss of financial liquidity and therefore particularly susceptible to the risk of bankruptcy.
– Trying to deal with this, and at the same time having very limited access to bank loans, these companies are looking for alternative sources of financing. This is one of the largest groups of micro-companies using factoring, right after construction and transport companies – Nowak points out.
Some consolation for entrepreneurs from the industrial sector may come from Tuesday’s data from the Central Statistical Office regarding the index of new orders in industry for export. In June, they increased by only 0.1% year-on-year, but this is already a break from the negative trend from the previous month, when the index was still very much in the red (a drop of 7.0%).
On a monthly basis, new export orders rose by 7.4%, after a 6.3% drop in the previous month. This may be the beginning of an upward trend that will restore balance to the finances of Polish companies in the industrial sector.
