The indicators turn red one after another. After a slowdown in the French economy expected in the first quarter, the horizon is darkening for French companies. Buoyed by the “whatever it takes” emergency measures, many sectors were able to take advantage of the commercial court hibernation for many months.
With all these crutches gradually being disconnected and the economy deteriorating due to the war in Ukraine, most economists expect bankruptcies to rise. “In this highly uncertain environment, fears of stagflation and fears of recession are on the rise. The consequences of the war in Ukraine can deal a knockout blow to the world economy”, Oxford Economics economist Daniela Ordoñez said at a recent press conference.
“No Territory Forgiven”
In its latest report presented on Monday, April 11, the research firm Altares, specialized in business data, recorded a 35% increase in business bankruptcies between January and March compared to the first quarter of 2021. “In the first quarter of 2022, the rope of the health crisis was released and the aid ceased. Return to a form of normality that also implies the resumption of defaults. Thus, the rebound is beginning and it is already very clear in sectors that depend on the resumption of consumption habits such as going to the restaurant or the hairdresser. No territory is spared from the phenomenon”, highlights Thierry Millon, Director of Altar Studies.
The outbreak of the war in Ukraine and its economic consequences in the Old Continent could accelerate the difficulties for a good number of sectors. “In early 2022, confidence in the future was gaining ground: cash levels and well-filled order books suggested a recovery in the economy. However, since February 24 and the start of the Russian invasion of Ukraine, the horizon has darkened: rising energy prices, supply difficulties, material shortages, rising pack inflation… so many signs that invite caution he adds. The expert does not foresee a wave of bankruptcies in the coming months either. With the second round of presidential elections due on April 24 approaching, this recovery in the first quarter could overshadow the results of outgoing President Emmanuel Macron.
An increase still lower than the pre-crisis level
The number of failures jumped compared to the first quarter of 2021, going from 7,406 to 9,972, an increase of 34%6%. However, it remains well below the pre-Covid levels recorded in 2018 (14,698) and 2019 (14,146). It seems that young companies are the most affected by this movement of bankruptcies. In fact, almost half of the companies that declared bankruptcy during the first quarter were created less than five years ago.
Those who registered just before the start of the pandemic or during the health crisis suffered especially (+52%). “The difficulties of young companies are especially marked in the activities of “multisupermarkets” (mainly general food stores) where defects are three times more numerous this quarter; but also in restaurants (+180%), where the number of procedures was exceptionally low a year ago,” the study authors note.
SMEs on the brink
By company size, small and medium-sized enterprises (SMEs) with fewer than 50 employees face much more difficulty than large ones. Thus, the number of insolvencies increased by 56% between January and March compared to the first quarter of 2021, exceeding its pre-crisis level. On the other hand, companies with more than 50 employees seem to resist this increase in bankruptcies.
Trade and restaurants hit hard
The other lesson from this study is that consumer-oriented activities are at the forefront. It is mainly about trade, restaurants and services to individuals. In general food (+83%) or clothing trade (+34%), the increases are vertiginous.
For restaurants, this increase is not really surprising given the long months of closure of all establishments. Many restaurateurs had expressed strong fears when government aid was disconnected. Added to this were the large number of resignations and serious recruitment difficulties since the fall of 2021.