2023-07-06 10:56:33
Posted Jul 6, 2023 at 10:53 a.m.Updated Jul 6, 2023 at 10:56 a.m.
France is back in business restructuring. After three years of “whatever it takes,” insolvencies rose for the sixth consecutive quarter between April and June. According to Banque de France statistics published on Thursday, 48,673 insolvency proceedings were opened cumulatively over one year at the end of June, against 33,570 a year earlier over the same period, an abnormally low level linked to the intervention of the State during the Covid crisis.
Even if the figures remain 4.8% lower than those observed in 2019 – i.e. 51,145 – and “at the average level recorded over the period 2010-2019”, the parenthesis is closed and economists expect failures to exceed their level before the health crisis over the whole year.
“Many adjustments”
“A rather healthy catch-up that is not surprising,” observes Paul Chollet, chief economist at Crédit Mutuel Arkea. Public aid has been stopped and assignments for recovery by Urssaf have resumed, with even “ex post controls on the exemptions granted. This leads to numerous adjustments,” notes Denis Le Bossé, president of Cabinet ARC, which specializes in debt collection.
In addition, rising raw material and wage costs combined with rising interest rates are putting pressure on margins. This while since last fall, economic activity has been idling. “The current growth is insufficient to stabilize the number of failures”, summarizes Maxime Lemerle at Allianz Trade.
“zombie” companies
In this context, failures particularly affect two categories of companies. The “zombie” companies that have benefited from a reprieve thanks to the public aid deployed during the pandemic. And also those who cannot afford to repay their state-guaranteed loan (PGE). “The challenge today is the financing of cash needs”, explains Denis Le Bossé, who notes “an upsurge in litigation and unpaid cases since March”.
The sectors most affected? “Those who operate in the most competitive activities and who find it difficult to pass on cost increases to their prices” summarizes Paul Chollet: in particular, the building (9,827 failures over one year) which raised a cry of alarm in beginning of the week, but whose current level of claims is far from its historical peak and its pre-pandemic level (-11.4% compared to 2019).
SMEs and ETIs now affected
The situation is also deteriorating in the hotel and catering industry (6,789) or the retail trade (10,747) hit by weak demand. Failures are also accelerating in industry where they even exceed their 2019 level by 4.5% with 3,590 defects.
“At the end of May 2023, the cumulative turnover of the companies which were the subject of insolvency proceedings over one year reached 21 billion euros. That is an increase of 50% compared to May 2022. This shows that the size of the companies affected by failures is increasing”, notes Maxime Lemerle. While VSEs were the first to fall, the wave is no longer sparing medium-sized companies (+85% in one year) and mid-sized companies (ETI).
2024, “dark year”
At the end of June, the Governor of the Banque de France, François Villeroy de Galhau, nevertheless wanted to be reassuring about the situation: “I believe in vigilance on a case-by-case basis, not in a general alert, nor in a “wall of bankruptcies” in France”, he assured in an interview with “Echos”.
Economists differ on the extent of future disasters. Coface experts expect 53,000 defaults this year in France – as in 2018 -, when others are more pessimistic and anticipate an acceleration in the coming months, without foreseeing a return to the 63,000 defaults recorded in the 2010s.
This is the case of the Allianz Trade expert who expects 59,000 in 2023 or that of Crédit Mutuel Arkea who puts forward a range of 58,000 to 60,000. The latter estimates, on the other hand, that “2024 will be a dark year, with a new historic record of 65,000 failures. This would lead to a 0.6 point rise in the unemployment rate. “Over the next six years, 50,000 defaults will be linked to the inability to repay PGEs, but the shock will be concentrated in the first years,” he explains.
In its scenario, the French economy should also record a contraction in its activity from the second half of 2023, for at least three quarters.
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