The number of bankruptcy declarations in the European Union (EU) has reached the highest level in eight years, as reported by the bloc’s statistics agency Eurostat. In the second quarter of 2023, the number of companies going out of business between April and June surged by 8.4% compared to the previous quarter. This marks the sixth consecutive quarterly increase and the highest level of bankruptcy declarations since Eurostat started tracking such data in 2015.
The data reveals that bankruptcy filings were on the rise in all sectors of the economy. The sectors with the largest increases in bankruptcy declarations were accommodation and food services (up 23.9%), transportation and storage (15.2%), and education, health, and social activities (10.1%). Among the 27 member states, Hungary experienced the highest increase in the number of bankruptcy filings (up 40.8%), followed by Latvia (24.8%) and Estonia (24.6%). On the other hand, Cyprus saw a significant decrease in the number of companies facing bankruptcy (down 48.5%), along with Croatia (23.6%) and Denmark (15.9%).
The rise in bankruptcies can be attributed to the lack of stability in the EU’s economic growth and the absence of government support. The region has been struggling with higher interest rates caused by an increase in inflation. Additionally, experts highlight the expiration of the Covid-19 pandemic era aid packages as a contributing factor to the surge in bankruptcies. These aid packages had artificially helped struggling companies stay afloat, and their termination has exposed the true financial difficulties faced by these businesses.
Christoph Niering, head of the Professional Association of Insolvency Administrators in Germany, commented on the market shakeout, stating that many firms seeking government support were already struggling before the pandemic. The current wave of insolvencies should not come as a surprise as these companies now face increased financing and wage costs.
Thomas Humblot, an economist at BNP Paribas, echoed a similar analysis, considering the surge in bankruptcies to be a “normalization” in the economic environment. He emphasized that the lifting of pandemic-era aid for companies is likely to contribute to the increase in bankruptcies due to the degraded economic conditions.
In contrast to the rise in bankruptcies, the registration of new businesses across the EU fell by 0.6% during the reporting period, as revealed by Eurostat’s data.
The current economic climate in the EU underscores the need for government intervention and support to prevent further business closures and job losses. As the region strives to recover from the impact of the pandemic and maintain stable economic growth, it is crucial for policymakers to address the challenges faced by companies and provide the necessary assistance to promote business sustainability and job creation.
In conclusion, the EU has witnessed a significant surge in bankruptcy declarations, reaching the highest level in eight years. Sluggish economic growth, lack of government support, and the expiration of Covid-19 aid packages have contributed to this trend. The accommodation and food services, transportation and storage, and education, health, and social activities sectors have been particularly affected. It is essential for policymakers to address these challenges and provide support to businesses to ensure economic recovery and stability in the region.
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