The highly unfavorable economic situation in recent years has resulted in the bankruptcy of 3,640 companies, marking an 89% increase compared to the same period last year. Despite the still high number of insolvencies, the third quarter of 2023 recorded a 13% decline compared to the previous quarter. It remains to be seen if this trend will persist in the long run, especially considering the parliamentary election outcomes.
The Polish economy is currently struggling due to the unfavorable global economic situation, which has impacted countries like the United States, China, and India. The growth of Eastern European countries has also significantly decelerated. Pressure on margins, rising prices of energy resources, and wages limit the profits of Polish enterprises, exacerbated by still relatively low demand. How does the current economic situation in the country look, and what can we expect in the upcoming months?
A Slow Deceleration in Numbers in the National Debt Register
In the first two quarters of 2023, the number of insolvent companies grew dynamically, with a slight deceleration observed in the third quarter. According to data from September 2023, the National Debt Register (NDR) announced 65% of so-called “announcement of the day of the arrangement” – 2,381 decisions, which are extrajudicial decisions, and 35% of bankruptcies or restructuring of Polish enterprises announced by courts – 1,259 decisions. In total, 3,640 insolvency decisions for Polish enterprises were announced, marking a 32% increase compared to the entire previous year.
Among the court proceedings, 780 arrangement approvals were announced, representing a 94% increase compared to the same period last year. This is the most frequently used court order among entrepreneurs.
Which industries suffered the most?
Recently, a deceleration in the growth dynamics of the number of insolvencies can be observed across all industries.
“In the third quarter, we still see a high, but declining, 13-percent reading – with 1,112 enterprises being covered,” says Barbara Kamińska, Director of Risk Assessment at Coface in Poland. She adds: “Similarly, we notice a decline in insolvencies in individual industries in the third quarter, which may give moderate optimism regarding future forecasts. Perhaps the peak of insolvency is already behind us?”
A clear downward trend was recorded in industries such as manufacturing (a 19% decrease compared to the second quarter of 2023, with 171 companies going bankrupt), trade (8% decrease, 253 bankruptcies), construction (10% decrease, 152 bankruptcies), transport (21% decrease, 119 bankruptcies), and services (17% decrease, 336 bankruptcies).
Meanwhile, the only industry experiencing an increase in insolvency is agriculture (an increase of 23%, 81 bankruptcies). It’s worth noting that the agriculture sector was the only industry that had previously shown a decline.
Which companies go bankrupt most often and where are the highest numbers recorded?
As in previous quarters, individual entrepreneurs are most vulnerable to the effects of insolvency, with their bankruptcy count currently standing at 2,798. In the first 9 months of this year, 637 limited liability companies, 76 limited partnerships, and 69 joint-stock companies also went bankrupt.
The highest number of insolvencies was recorded in the provinces of Mazovia, Silesia, and Greater Poland.
What will the end of 2023 look like?
The upcoming months will bring further uncertainty, especially in foreign markets, on which the Polish economy still heavily relies. The current forecast by Coface predicts that the global economic growth in 2024 will be only 2.2%, compared to the previously forecasted 2.4% for the current year. Lower results were only recorded during the technological crisis, financial crisis, and the COVID-19 pandemic. However, raising interest rates, although currently impacting inflation control, also limits the acceleration of economic growth.
According to Coface experts, the current downward trends in company insolvency dynamics reflect the macroeconomic situation in Poland. Although the number of companies going bankrupt decreased in the third quarter, it is still uncertain if this trend will continue. Estimates based on data collected over the past 9 months still do not indicate an end to the challenging situation of the Polish economy.
“Many companies facing liquidity challenges will still be forced to resort to legally prescribed remedial measures, resulting in non-payment to their contractors,” explains Grzegorz Sielewicz, Chief Economist of Coface in Poland and the Central Europe Region. He adds, “Over the past few years, since the amendment of the bankruptcy law and the introduction of new procedures, businesses have been using available options more effectively. There is hope that in the upcoming months, restructuring activities aimed at returning the company to effective business operations will be used primarily. Only if these fail, will companies declare bankruptcy to liquidate assets.”
