Increasing CEE Company Bankruptcy-Romanian Journal

• Corporate bankruptcies in Central and Eastern Europe (CEE) increased in 2021 after a decline in proceedings in 2020, almost reaching pre-pandemic levels in most countries.
• We experienced more bankruptcies in 7 countries (Bulgaria, Czech Republic, Hungary, Lithuania, Poland, Romania and Slovenia) and recorded a decline in 5 countries (Croatia, Estonia, Latvia, Serbia and Slovenia).
• COVID support measures are phased out and CEE bankruptcies are expected to increase in the coming quarters as a result of the war between Russia and Ukraine.

Various economic conditions, supportive measures and legislative changes have affected bankruptcy trends in Central and Eastern Europe over the past two years. The COVID pandemic slowed regional growth by 4% and caused a recession. “”In 2021, growth in the region increased (5.5%), but this momentum is expected to disappear at a growth rate of 3.2% this year.“Grzegorz Sielewicz, Coface Economist in Central and Eastern Europe, said. “”All CEE countries can suffer the direct and indirect consequences of the war between Russia and Ukraine.The Baltic states are set to record the weakest growth rates due to their trade relations with Russia... “

Elimination of support measures and still difficult environment cause increased bankruptcy

After a decrease in bankruptcy in the region in 2020, bankruptcy proceedings increased in 2021 and almost returned to pre-pandemic levels. This surge was expected as the government intended to curtail large-scale support measures. The regional GDP weighted average, calculated from the country’s bankruptcy dynamics, showed an increase of 34.7% in 2021 compared to the previous year (except for Poland, where the total number of procedures surged mainly due to new procedures). + 1.5% increase).

Seven countries (Bulgaria, Czech Republic, Hungary, Lithuania, Poland, Romania and Slovakia) experienced more bankruptcies than the previous year, and five countries (Croatia, Estonia, Latvia, Serbia and Slovenia) recorded a decline. .. In Poland, nearly double the number of procedures, mainly due to the surge in dedicated procedures implemented to assist companies suffering from pandemic liquidity problems. Despite this surge, Poland’s bankruptcy rate, the total number of proceedings in the total number of active companies, reached 0.06% and passed public proceedings available only to 6 out of 10,000 Polish companies. Means that.

In countries where the use of bankruptcy proceedings is more common, much higher bankruptcy rates have been recorded. That is + 1.61% in Croatia and + 3.31% in Serbia.

The global economic situation over the last two years has presented a difficult environment for CEE companies. The economic recovery, which began in mid-2020, was faster than expected, causing a surge in demand, especially from the manufacturing industry. Prices for various metals and inputs used in energy commodities, transportation, and production processes have skyrocketed. In some cases, the output level was limited due to lack. The most obvious example is from semiconductors, whose shortage has reduced the number of shifts and temporarily closed car factories for various car brands. Higher energy and fuel costs amid rising production input prices have reduced corporate profitability. These global developments are being applied to CEE companies due to their inclusion in various supply chain issues and the significant trade relations between the region and Western Europe.

From one crisis to another

Despite the ongoing coronavirus pandemic, there are other challenges that impact the economy and businesses. As Europe continues to rely on Russia’s imports of oil, natural gas and coal, Russia’s full invasion of Ukraine immediately contributed to the rise in energy prices. In addition, both countries are important producers and exporters of agricultural products. Agricultural production is also affected by fertilizer prices, which is accelerating, and the CEE region relies on fertilizers imported from Russia and Belarus. In addition, rising global prices and metal shortages from the war exacerbated supply chain disruptions. These factors have further increased the prices of energy and inputs for companies, including CEE. In addition, the decline in household purchasing power is also a concern for potential customer bases. The CEE economy is experiencing accelerated inflation, primarily due to rising food prices as well as rising energy prices.

Russia continues to be an important trading destination for the CEE region, especially the Baltic states. The total value of imports and exports with Russia is equivalent to 15.1% of Lithuania’s GDP in 2021. In addition, Russia’s invasion of Ukraine caused a huge humanitarian crisis with economic implications. All CEE countries are expected to record lower growth rates in 2022 compared to pre-war estimates, but the influx of Ukrainian refugees could support regional growth, at least in the short term. I have.

“Given these challenges, the increase in corporate bankruptcies is expected to continue in the next quarter.”Jarosław Jaworski, Regional CEO of Coface Central and Eastern Europe, explains. “This increase will accelerate as a result of the war between Russia and Ukraine, especially as it is unlikely that large-scale support programs for local businesses will be implemented, such as during the blockade of the coronavirus.”