FRANKFURT, Feb. 24 (Xinhua) -- Companies in the EU that went bust set a record high in the fourth quarter of 2022 since the start of the data collection in 2015, a report from European Union statistics agency Eurostat indicated.
With a substantial growth of 26.8 percent from the previous quarter, bankruptcy declarations in the EU reached the highest level of 113.1, an index used to gauge the bankruptcy level in the EU compared to the benchmark of 100 in 2015.
Historical data from Eurostat show that the index started to pick up since the second quarter of 2020 and went up precipitously throughout 2022. The figure in the fourth quarter reflected a deteriorating situation in which companies, especially small and medium-sized enterprises (SMEs), are grappling with diminishing demand, soaring production and a gloomy future.
All business sectors reported an increase in bankruptcy declarations, with transportation and storage, accommodation and food services, and education, health and social activities bearing the brunt with increases of 72.2 percent, 39.4 percent and 29.5 percent respectively.
The SMEs were at bay in particular. Due to the soaring production cost incurred by an energy crisis, the number of bankruptcies in France jumped by 50 percent and the SME bankruptcies climbed by 78 percent year on year in 2022, with more than 30 percent of them filing for a closure in the fourth quarter, according to Altares, a commercial data company in France.
Thierry Millon, director of research at Altares, noted that the local economic network would be impacted when SMEs went bust.
Some analysts believe that the dramatic growth of bankruptcies in the EU can be largely attributed to factors including the slowdown of economic growth, surging energy prices, diminishing government support, soaring wages and financing costs.
In parallel, multi rounds of sanctions imposed by the EU on Russia have backfired, compounding the energy crisis and supply chain disruptions which in turn pile pressure on companies.
The price hikes of energy products have left companies in limbo and put the question of survival into the whole industry, said Stefan Genth, executive officer of German Retail Federation.
As the economy goes sluggish, companies that are not able to transfer the lifted production cost to customers at a time when the demand is weak are in the storm eye, said Tillmann Peeters, a partner of the German consultancy Falkensteg.
The rolling back of government support for companies also played a crucial role in the rise of bankruptcies, according to James Watson, chief economist of BusinessEurope, the confederation of European Business.
In 2020, governments of some European countries came up with a host of supportive measures to help companies that were hit hard by the COVID-19 pandemic. The government support, coupled with a lucrative low interest rate, helped some companies stay aloof in the pandemic. As long as the government support is gone, an increasing number of companies that would not have survived without government bailout filed for bankruptcy.
In the second half of 2022, the number of companies declaring a bankruptcy in France rose by 16 percent after the French government ended supportive measures.
When government support becomes weaker and wages and financing costs climb, the companies that are struggling for survival will find it a mission impossible, said Ludovic Subran, chief economist of Allianz.
The road ahead is bumpy for European companies. All the factors that are threatening the survival are still in play, and the first quarter of 2023 will be a difficult time for the companies, said Millon.
The trend of increasing bankruptcies in Europe will not come to an end in the near term, Peeters noted. ■
