Tension in the French economy is growing. After sluggish growth in the first quarter, many companies could go out of business. According to the latest forecasts released by Allianz Trade this Wednesday, May 18, the number of bankruptcies is expected to rise by 15% in 2022 and by 33% in 2023 in France. However, these forecasts remain more optimistic than last autumn’s forecasts. At the time, the credit insurance giant was looking for a 40 percent rise in bankruptcies in 2022. The extension of the “at all costs” measures and the resilience plan last spring, with a €7 billion extension, may partly explain these more favorable developments. .
It must be said that the PGE schemes, partial unemployment, the solidarity fund and the shelving of arbitration courts have artificially reduced the number of procedures over the past two years. The start of the war in Ukraine and supply constraints put pressure on the companies’ cash flows. “The worst is yet to come” Economics Minister Bruno Le Maire recently warned.
While the government is already working on amending the summer budget to cushion the shock of the conflict, the stalemate in Ukraine has significantly clouded the economic horizons for businesses and households. Inflation hit 4.8% in April and could top 5% by June, according to the latest INSEE economic data.
35% jump in Q1 2022
Between January and March, the number of business failures increased by 35% compared to the first quarter of 2021. “In the first quarter of 2022, the growth in insolvency was quite sharp. However, it should be remembered that there is a base effect compared to the very low levels of 2020 and 2021. 2021″, explained Maxim Lemerle, director of industry research, interviewed Gallery.
In March, growth was especially noticeable in the automotive trade (+25%), transport and warehousing (+18%) and construction (+17%), which were particularly affected. “In France, this increase will affect very few sectors. In terms of company size, first of all, VSE with turnover recorded the highest growth (+10%). This is a return to reality with the gradual cessation of infusions […] There is a risk of a domino effect, adds the economist.
Despite this increase, the bankruptcy rate should not return to pre-crisis levels. 43,300 cases are expected in 2023, well below the 2019 level (-16%). Economists expect a gradual normalization of the situation in France.
PGE: a puzzle for companies in some weakened sectors
The disruption in supply chains and soaring energy prices have led to higher production costs in businesses and especially in industry. At the same time, the European Central Bank has already begun to tighten its monetary policy, halting its Pandemic Emergency Asset Purchase Program (PEPP) and announcing its first rate hike this summer.
In this bleak context, some companies in the sectors hardest hit by two long years of the health crisis may find it difficult to secure repayments on government-guaranteed loans, especially those that were already short on cash before the pandemic ended. In total, more than 700,000 companies have taken out loans, according to Bercy’s latest figures. In the face of all these headwinds,how quickly will companies use up their cushion and profits made during the recovery? asks an economist who specializes in failure. According to this expert, “The state will continue to adjust its support to those sectors that need it most. The measures are more targeted. Business sustainability is important.
+10% failures in 2022 and +14% in 2023 worldwide
A severe slowdown in the global economy in 2022 is likely to cause damage on a planetary scale. The global credit insurance giant expects growth of 10% in 2022 and 14% in 2023. In Europe, corporate debt worsened by about 5 points in 2021, compared to 3.5 points in the US. The war in Ukraine and inflation risk erosion of purchasing power and consequently a drop in demand. This can be especially detrimental to business investment. “Normalization of insolvency around the world is gaining momentum. This has already been noticeable since 2021 in some countries such as Spain or Italy with a strong rebound.”Maxim Lemerl says.
However, there are opposite situations behind this rise. “In Western Europe, two distinct trends should be observed: in the UK and Spain, the number of bankruptcies will exceed the level of 2019 by the end of this year, and in Italy, Portugal and the Nordic countries, normalization will not occur until 2023,” adds Ana Boata, economist at Allianz. China, for its part, must limit breakdowns, which other Asian countries will not, while American companies could “take advantage of the reserves accumulated since the pandemic”, specified by the insurer.