Business bankruptcies across Europe rose 27 percent in last year’s fourth quarter compared to the third as more companies that had survived the COVID War on government aid finally failed, the Financial Times said.
The failure rate was the highest since the European Commission (EC) began tracking the data in 2015, the EC statistics agency noted.
Across the continent, failures were especially present in food services and lodging, with failures up 39 percent; and in transport and warehousing, where business bankruptcies shot up 72 percent, the FT said.
Spain was an epicenter, with twice as many businesses going bust in the second half of 2022 compared to the first. A change in law made it easier to reorganize under bankruptcy protection, prompting more teetering companies to take advantage.
The number of filings in France grew by 16 percent. Bankruptcy counts fell in Germany and Italy.
“There were a lot of companies that were given a free pass during all of 2020 and 2021 when they didn’t even have to pay some of their creditors,” Ludovic Subran, chief economist at Allianz, said to the FT.
The company foresees a 20-percent overall increase this year in business bankruptcies.
“These companies are now facing less support, with increased financing and wage costs,” Subran said. “It is becoming completely untenable.”
“Governments withdrawing support is having an impact,” chief economist James Watson at BusinessEurope acknowledged in an FT interview, and also “it is becoming an increasingly difficult trading environment due to high inflation, weak growth, and rising interest rates.”
TREND FORECAST: As we noted in “Corporate Bonds Take a Beating as Interest Rates Rise” (15 Nov 2022), junk bonds were in a new world of trouble the moment interest rates began to climb.
The rate of corporations defaulting on bonds will increase every time interest rates go up in their home countries.
Even if central banks pause their campaigns of rate hikes (which they will not in the near term), defaults will continue to rise: only speculators will want to bet on overborrowed companies floundering in a weak global economy.
This is the case not only in the West, as we pointed out in “Global Junk Bond Markets Reeling” (1 Feb 2022): junk bonds are in trouble around the world. Their rising rates of default, especially among developing nations, will speed the world’s fall into recession. (See “Emerging Markets’ Stock and Bond Run is Running Down” in this issue.)