Despite optimistic forecasts at the end of 2023, the first three months of the current year have led to the insolvency of as many as 1,635 enterprises. Economists from Coface, the company that conducted the research and prepared the report on this topic, point out that this number is 31% higher compared to the same period last year and represents 35% of all insolvencies announced in 2023.
While the first signs of the expected recovery can be seen in the Polish economy, the high number of insolvencies in the first quarter of 2024, which we are currently observing, was negatively influenced by factors from the previous year. Particularly impactful were soaring inflation and high interest rates, wage pressure, high energy costs, and the downturn in Poland and European Union countries. In our country, companies in the construction and transportation sectors particularly felt the difficult situation.
Legal Proceedings or Out-of-Court Settlements?
Data presented by Coface show that the popularity of the out-of-court procedure continues to be maintained. In the first three months of 2024, 1,537 entrepreneurs took advantage of it. Meanwhile, courts announced bankruptcy and restructuring proceedings for 98 Polish companies, which only represents 6% of the total number of insolvent enterprises.
Economists indicate that the year-over-year increase in insolvencies is driven by legal changes made in previous years. Current provisions give companies more opportunities to undergo restructuring proceedings. This allows us to believe that some enterprises will return to effective business operations after undergoing healing restructuring. In many cases, unfortunately, these actions only postpone the problem in time. As a result, the number of bankruptcies will rise, and restructuring will stabilize.
Construction and Transport in Trouble
The sectors that recorded the highest dynamics of growth in insolvent companies in the first quarter of 2024 are construction (245 companies) and transport (228). Barbara Kamińska, Risk Assessment Department Director at Coface in Poland, explains the reasons for this situation.
– The construction industry faced, on one hand, weakening demand, and on the other, cost-related challenges. Inflation and the ongoing shortage of construction workers created pressure for wage increases – says the expert. – On the other hand, the number of insolvencies in transport has been growing at an alarming rate for some time now. The year 2023 was marked by a decrease in transport orders, both domestic and international, which was reflected in the drop in transport rates. On the other hand, the debt of companies in the TLS sector generated high interest costs, and the mobility package forced an increase in labor costs for companies providing international services. Not to mention, high inflation – with a shortage of drivers, it exacerbated the overall wage pressure – emphasizes Barbara Kamińska.
There was an increase in insolvencies in almost all sectors. Only agriculture broke this trend, noting a downward dynamic.
Where and Which Enterprises Fail Most Often?
As in previous quarters, the latest study by Coface showed that the most companies failed in the Mazowieckie province (314 enterprises). Second place was taken by Silesia (212), followed by Małopolska (156) and Wielkopolska (144).
Among the companies that declared insolvency in the first three months of 2024, the most were individual entities – entrepreneurs (1,231). For comparison, in the same period last year, the number was 957. This quarter was also not favorable for limited liability companies – 327 of them failed. In third place were limited partnership companies – 36 insolvent entities.
What Will the Coming Months of 2024 Bring?
Economists emphasize that the past year was the weakest period in the history of the Polish economy, with the exception of the pandemic recession in 2020. However, the first months of 2024 have already brought an acceleration in the Polish economy. Experts note, however, that the dynamics of industrial production will still be low, as it is influenced by the situation in foreign markets. Germany, the most important trading partner of Poland, still cannot emerge from the economic slump.
– Despite the unstable situation abroad, we expect that the economic climate in Poland will continue to improve, and economic growth will accelerate to 2.8% in 2024 year – says Grzegorz Sielewicz, Chief Economist of Coface in Poland and Central Europe. – Exports will still be characterized by low dynamics, but Poland’s high price and quality competitiveness and the attraction of foreign investments will partly compensate for the problems of global trade. Importantly, the main driving force of the Polish economy will again be household consumption – concludes the expert.
However, entrepreneurs must be cautious. The rising propensity of Poles to make purchases will not be synonymous with a boom in acquiring goods. It is important to remember that consumers are still sensitive to price levels, especially in the context of the return of the VAT rate on food products and the planned partial thawing of energy prices, which may cause an increase in inflation.
