Tensions on the French economy are increasing. After the sluggish growth of 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 insolvencies should jump by 15% in 2022 and 33% in 2023 in France. However, these projections remain more optimistic than those of last fall. At the time, the credit insurance giant was counting on a 40% surge in bankruptcies in 2022. The extension of the “whatever the cost” measures and the resilience plan last spring with an extension of 7 billion euros can partly explain these more favorable revisions.
It must be said that the PGE schemes, partial unemployment, the solidarity fund and the shelving of the commercial courts have artificially reduced the number of procedures over the past two years. The outbreak of war in Ukraine and supply difficulties put pressure on companies’ cash flow. “The worst is ahead of us”, recently warned the Minister of the Economy Bruno Le Maire.
Although the government is already working on an amending budget for the summer in order to cushion the shock generated by the conflict, the stalemate of the war in Ukraine has considerably darkened the economic horizon for businesses and households. Inflation reached 4.8% in April and could exceed 5% by June according to the latest INSEE economic update.
A 35% jump in the first quarter of 2022
Between January and March, the number of business failures soared by 35% compared to the first quarter of 2021. “In the first quarter of 2022, the rise in insolvencies was quite sharp. It should nevertheless be remembered that there is a base effect compared to the very low levels of the years 2020 and 2021. The catch-up had started at the end of the year 2021”, explained Maxime Lemerle, director of sector research interviewed by The gallery.
In March, the increases were particularly spectacular in the automobile trade (+25%), transport and warehousing (+18%) and construction (+17%), which was particularly devastated. “In France, very few sectors are spared by these increases. By company size, it is above all VSEs with a turnover that have recorded the highest increase (+10%). It’s a return to reality with the gradual cessation of infusions […] There is a risk of a domino effect”, adds the economist.
Despite these increases, the level of bankruptcies should not return to pre-crisis levels. In 2023, 43,300 cases are expected, a much lower level compared to 2019 (-16%). Economists expect gradual normalization for the French case.
PGE: the puzzle for companies in certain weakened sectors
The shambles 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 started to tighten its monetary policy by stopping its Pandemic Emergency Asset Purchase Program (PEPP) and announcing a first rate hike in the summer.
In this gloomy context, some companies in the sectors most affected by the two long years of health crisis could have difficulty in ensuring the repayments of loans guaranteed by the State, especially for those which already had little cash before the end of the pandemic. In total, more than 700,000 companies have taken out a loan according to recent figures from Bercy. In the face of all these headwinds, “how quickly will companies consume their financial cushion and the gains generated during the recovery? asks the economist specializing in failures. According to this expert, “The state will continue to adjust its support to the sectors that need it the most. The measures are more targeted. What matters is the resilience of businesses.”
+10% failures in 2022 and +14% in 2023 worldwide
The serious slowdown of the planetary economy in 2022 is likely to do damage on a planetary scale. The global credit insurance giant expects an increase of 10% in 2022 and 14% in 2023. In Europe, corporate debt deteriorated in 2021 by around 5 points against 3.5 points in the USA. The war in Ukraine and inflation risk causing an erosion of purchasing power and therefore a drop in demand. This could have particularly harmful consequences for business investment. “The normalization of insolvencies around the world is gaining in intensity. It was already visible from 2021 in certain countries such as Spain or Italy with strong rebounds”says Maxime Lemerle.
Behind this rise, however, there are contrasting situations. “Western Europe should see two distinct trends: in the UK and Spain, the number of insolvencies will exceed its 2019 level by the end of this year, while in Italy, Portugal and the Nordic countries, normalization will not happen until 2023″, adds Ana Boata economist at Allianz. China for its part should limit breakage, which will not be the case for other Asian countries, while American companies could “benefit from the reserves accumulated since the pandemic”, details the insurer.
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