Corporate insolvencies in Central & Eastern Europe (CEE) increased in 2023. Economic performance in the region will remain below its potential in 2024.
Economic Downturn Spurs Surge in CEE Insolvencies
The year 2023 witnessed a sharp rise in company insolvencies across Central and Eastern European (CEE) countries, driven by an economic downturn. Initially supported by government measures during the pandemic, businesses faced new challenges as these initiatives were withdrawn and macroeconomic pressures intensified.
The region experienced a significant decline in average GDP growth, plummeting from 4.0% in 2022 to a mere 0.5% in 2023, marking the lowest rate this century, excluding the 2009 global financial crisis and the 2020 Covid-19 pandemic. Notably, Czechia, Estonia, Hungary, Latvia, and Lithuania reported negative growth rates.
External Shocks and Internal Challenges Drive Insolvency Surge
Insolvency proceedings in the CEE region surged by 38.6% from 2022 to 20231, signaling another year of double-digit growth. The reverberations of Russia's invasion of Ukraine were felt throughout the region, disrupting supply chains and contributing to soaring energy prices. These external shocks, alongside internal issues such as labor shortages and rising input costs, have significantly impacted businesses, particularly in the construction and trade sectors. These sectors faced challenges including labor shortages, wage pressures, and weakened demand.
This rise was fuelled by a combination of internal and external factors that amplified the challenges facing companies in the region, especially geopolitical tensions and inflationary pressures that steered companies into troubled waters.
explains Grzegorz SIELEWICZ, Coface’s Head of Economic Research for Central and Eastern Europe.
Recovery Challenges Ahead
"We expect a further increase in insolvencies in 2024, albeit at a lower rate than the previous year,and globally, companies will still not reach their full economic growth potential as a result of the challenges they face in the day-to-day running of their businesses”, adds Jarosław Jaworski, CEO of Coface in the Central & Eastern Europe Region.
The business landscape in 2024 presents numerous challenges, including limited turnover growth, declining margins, and ongoing hurdles for export-oriented companies due to sluggish foreign demand, notably from Germany. However, there are indications of a consumer-driven recovery on the horizon, particularly in essential goods sectors, which could bolster economic activity in the CEE region. Nevertheless, companies continue to face mounting pressure from rising commodity prices and labor costs, including minimum wage increases in CEE countries.
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1 Source Coface
