Insolvencies in European Nations to Decline Overall in 2016

Insolvencies for businesses in Northern, Central and Eastern Europe are forecast to decline this year overall following an improved insolvency environment in 2015. But the nation-by-nation insolvency picture is more mixed with some nations expected to see deterioration going forward this year, according to a recent report by credit insurer Coface.

In Northern Europe, insolvencies dropped an average of 14% in 2015, and the rate should continue to decline this year, though at a slower pace due to weaker average GDP growth in the region, Coface said. Germany, for instance, saw a 4% decline in insolvencies in 2015 and should see a 2.5% decline this year. The region’s exception, Denmark, had a 0.5% decline in insolvencies last year and should see as much as a 60% increase in insolvencies this year. “Denmark’s very bad start to the year will lead to the number of business failures showing a marked increase for 2016 as a whole,” Coface economists stated. In particular, insolvencies for “freelance” businesses and in unspecified categories, such as “other businesses” and “activity not stated,” have accounted for a significant share thus far this year of the nation’s insolvencies. Also, smaller firms with a turnover of less than about $150,000, as well as inactive firms, are set to contain the lion’s share of the insolvencies in Denmark.

Countries in Central and Eastern Europe generally benefited from an improved economic environment in 2015, with exports to the Eurozone leading the charge, along with a boost from private consumption aided by falling unemployment rates, rising wages, low inflation, subdued commodity prices and low interest rates, Coface noted. Overall, about 1% of active businesses in this region became insolvent. In Romania, which benefited from a ramp up in fiscal stimuli, insolvencies dropped some 50% in 2015, while Ukraine saw a 20.8% rise in insolvencies brought on by an economy in recession and ongoing conflict with neighboring Russia.

“Business conditions will remain supportive but less so than last year,” said Grzegorz Sielewicz, region economist for Central Eastern Europe with Coface. “We forecast that insolvencies will decline by -5.3% for the full year of 2016.” Growing consumer confidence brought on by ongoing improvement in the labor market is set to be the main driver of growth in the region this year.

- Nicholas Stern, editorial associate

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