Through April, May, and June, business bankruptcies in the Eurozone increased 8.4 percent, according to Eurostat, the European Union’s statistics agency.
A stagnating regional economy and the end of COVID-era supports are to blame, The Wall Street Journal noted.
At the same time, registrations of new businesses slipped by 0.6 percent, partly as a result of U.S. incentives for domestic green manufacturing projects drawing capital from Europe to the U.S., analysts told the WSJ.
All economic sectors were hit in the rise in bankruptcies, but restaurants, hotels, and transport businesses took the brunt.
The Baltic states of Estonia, Latvia, and Lithuania recorded the largest number of business failures. The three countries’ economies were closely entwined with those of Ukraine and Russia and have been thrown into turmoil by Russia’s war.
In mainland Europe, Hungary showed a 41-percent jump in bankruptcies year over year, the most in the region. Germany’s rose 24 percent.
“The situation of the German economy is growing darker,” Clemens Fuest, president of the Ifo Institute, an economic think tank, said in a public statement.
The institute’s index of German business confidence sank in July for the third consecutive month, he noted.
Most companies failing now were on the brink before the COVID War, Christoph Niering, director of Germany’s Professional Association of Insolvency Administrators, told the WSJ. They survived only because Europe’s central bank and national governments flooded the region’s economies with a wide array of stimulus and support programs.
Once again left on their own, those businesses are now returning to their previous unstable state, he noted.
TREND FORECAST: With bankruptcies rising and new business loans decreasing in number, Europe is poised on the edge of a downward economic spiral.
As more commercial real estate loans fail, banks will curtail lending further, speeding the tailspin that ultimately leads to recession. The additional interest rate increase by the European Central Bank (ECB) will make that outcome even more likely.
ECB officials have said they would not necessarily object to a recession if it ends inflation. They are increasingly likely to get their wish.