Analyzed the situation of bankruptcies: they increased in Lithuania, but not as much as in Estonia

According to the press release, the number of insolvency cases increased by 38.6 percent in the entire CEE region last year, and it rose the most in Hungary (152.5 percent) and Poland (70.8 percent).

According to the forecasts of Coface experts, CEE economic growth will remain weak this year due to falling exports, high raw material prices and rising labor costs; the number of bankruptcies will continue to grow, but not as fast as last year.

The analysis of bankruptcies of business companies in the Baltic countries showed that the reasons for bankruptcies have not changed over the past year – they were caused by high debts, excessive risk taking and lack of working capital. According to Mindaugas Sventickas, head of Coface Baltics, most of the bankrupt companies were engaged in trade, vehicle repair and construction.

Of the three Baltic countries, only Latvia recorded a slight decrease in insolvency cases (-3.90%). In Lithuania, the number of bankruptcies increased slightly (1.8 percent): in 2023 there were 1,060 such cases compared to 1,041 bankruptcies in 2022.

Among the Baltic countries, the biggest change was observed in Estonia, where the number of insolvency cases rose by 14.41 percent. This was caused by a sharp slowdown in Estonia’s main export markets (mainly Scandinavian countries), which mostly affected the construction, trade and manufacturing sectors. Among the Baltic countries, it was Estonia’s economy that experienced the biggest GDP decline, and according to Coface experts, the situation in this country will continue to deteriorate this year.

“The slight increase in the number of bankruptcies in Lithuania last year was determined even before the pandemic – most insolvent companies were balancing on the edge of survival even before the pandemic and only the support applied by the government allowed them to survive for a few more years,” says M. Sventickas. – Estonia’s situation is complicated by particularly close export relations with Scandinavian countries, while the resilience of Lithuanian and Latvian farms is strengthened by greater diversification of export markets.”

An analysis of insolvency cases by Coface showed that the total number of corporate insolvency cases in CEE countries increased from 36,208 (2022) to 50,199 (2023), which is an increase of 38.6 percent. This meant another year of double-digit growth in the number of bankruptcies, as the dynamics in 2022. had reached 39.2 percent.

Comparing the dynamics of the number of bankruptcies in 2020-2022, among the 12 countries of Central and Eastern Europe, Hungary and Poland (70.8%) experienced the highest growth (152%). During the last year (from 2022 to 2023), insolvency cases also increased in Slovakia (15.3%), Estonia (14.4%), Serbia (6.7%), the Czech Republic (4.9%). ), in Lithuania (1.8%) and Slovenia (1%). The number of bankruptcies remained the same in Romania (change – 0%), but decreased in Latvia (-3.9%), Bulgaria (-10.5%) and Croatia (-18.8%).

Grzegorz Sielewicz, Chief Economist of Coface for the CEE region, says that the further dynamics of bankruptcies was determined by both the specifics of global business and macroeconomic phenomena.

“While Russia’s military aggression against Ukraine has caused a spike in energy prices, disrupted supply chains, and caused direct damage to CEE countries due to their geographic proximity to both belligerents, the region’s economy has shown considerable resilience.

However, the general economic situation in the CEE region is experiencing difficulties – the average GDP growth of the region decreased from 4.0 percent. in 2022 to just 0.5 percent in 2023 – the lowest rate in this century, excluding recessions during the global financial crisis in 2009. and the Covid-19 pandemic in 2020″, says G. Sielewicz.

The Coface expert points out that last year in several countries – the Czech Republic, Estonia, Hungary, Latvia and Lithuania – economic decline was recorded, which was caused by both external and internal factors. The main trade partners of the CEE region (Western European countries) experienced economic slowdown and even recession, as well as a slowdown in global trade – all of these factors determined the decrease in CEE exports.

According to G. Sielewiczius, different sectors of VRE’s activity, experiencing various challenges and suffering from fluctuating demand, recorded different results. The overall rise in prices contributed to opportunities to increase company turnover, but increased business costs diluted profits.

Slowing economic activity has been driven by both subdued domestic demand and weaker foreign markets, with export-oriented sectors including machinery and automobiles as well as energy-intensive sectors such as metal, woodworking and paper suffering declines.

The largest share of insolvency went to the construction and trade sectors. For example, the share of bankruptcies in the construction sector in Hungary reached 30%. of all cases, 28 percent. – in Slovenia, 26 percent. – in Croatia, 21 percent. – in Romania and Lithuania.

Coface experts predict that a similar business environment can be expected this year as well. The opportunities to increase turnover have decreased, and earning more profit is prevented by a particularly low profit margin. Households are likely to be more likely to spend money on consumer goods. However, exporting companies cannot yet fully exploit their potential, as foreign demand has not yet recovered, especially in Germany, which remains the main trading partner for most CEE countries.

The results of companies will continue to be affected by rising costs, which are determined not only by the recent increase in raw material prices, but also by constantly increasing labor costs due to the increasing minimum wage in CEE countries.

According to Coface forecasts, insolvency cases in the CEE region in 2024 will continue to increase, but it will already be a single-digit dynamic, that is, the number of bankruptcies will grow at a lower rate than last year.