Since the beginning of 2024, the data communicated by the Trade Register on insolvencies have been quoted in the public space without showing a more comprehensive view. If in 2020 states intervened to reduce some of the problems caused by the pandemic, the number of collapses quickly began to return to growth. The inflation and energy crises have erased the effects of state aid, and in Romania, the construction sector is feeling these shocks the most, after the number of insolvencies exploded, compared to 2019.
In Romania, the number of companies that could no longer cover their debts exceeded the pre-pandemic level at the end of 2022.
Ziare.com analyzed the evolution from the last five years of insolvencies of companies and authorized natural persons, which they present in the graphs and text below.
There is no consensus among analysts and economists as to what defines a economic recession. In the US, the definition refers to a “significant decline in economic activity”, while in the UK, a recession equates to two quarters of economic decline, according to the Office for National Statistics. In mid-February, the governor of the Central Bank, Mugur Isărescu, said that although there are several definitions for a recession, Romania does not pose a risk of a drastic slowdown in economic activity, writes Europa Liberă.
More though the 2008-2009 crisis was accompanied by bankruptcies, the financial-banking nature of the crisis was creating a domino effect and starting at the top. An analysis published after the Great Recession that looked at firms in the United States found no systemic relationship between insolvency crises and recessions. However, the authors note that the periods of great economic hardship in the 1930s, as well as that of 2008, are associated with significant solvency problems.
The data published by the National Trade Register Office (ONRC) is not detailed enough to show how big the insolvent professionals are or how their economic position has evolved. An economic analysis published in April 2023 by the French bank BNP Paribas pointed out that the withdrawal of economic support measures for the private sector after the first year of the pandemic led to a general increase in insolvencieswhile highlighting the greater impact of anti-inflationary measures on trade and construction.
The situation of insolvencies in six major areas
The picture that the ONRC data creates is, however, one that can look broad what kind of businesses are more sensitive to debt todayon the bottom of the fall of world stock markets in 2020al rampant inflation and of energy crisis which started at the same time. A fall 2023 forecast by an insurance company for this year saw the largest increase in insolvencies in the United States (33%), fueling global growth. In contrast, the forecast for Europe was around 10%, a more moderate growth than in previous years.
In the first three months of 2024, most insolvencies were recorded in the trade sector, to professionals who were active in wholesale and retail sales, respectively companies that repair cars and motorcycles. Almost 500 and PFAs of companies in this field of activity had too much debt in the first quarter of the year. In this economic sphere, the annual number of insolvent companies was, at the end of 2023, almost 1,800, below the level of 2019, when it was almost 2,000 entities.
The sectors for which the evolution of insolvencies in the first quarters of recent years is presented are important from the point of view of the contribution to the gross domestic product. The six major fields of activity represented, in 2022, over two thirds of GDP.
Annual data on insolvency reveals that the number of companies that could no longer pay their debts reached, at the end of 2022, to exceed the pre-pandemic level. In 2023, 6,650 professionals became insolvent, a tiny increase from 6,649 the previous year. In 2020, the number of insolvencies drops by almost more than 10%, from 6,500 to 5,700. A difference can also be seen in the quarterly comparison: in 2019, no fewer than 1,500 firms went into insolvency in the first three months, compared to just over 1,300 in 2020.
When presenting the formation of the gross domestic product, the National Institute of Statistics (INS) groups several areas of activity, as can be seen in the first graph. However, ONRC data allow an analysis by economic activity areas. In the extractive industrythe number of insolvencies was low throughout the analyzed period, but steadily increased until the end of 2022, after which it decreased, from 26 companies in December 2022 to 16 in December 2023.
The hospitality sector it was one of the most affected by the coronavirus pandemic, but also one of those where consumer prices rose significantly afterwards. If 500 insolvencies were registered in 2019, the number of procedures drops to 430 in 2020, but rises sharply at the end of the following year to 520, the peak of the analyzed period.
In the information and communications an increase in insolvencies is observed between the end of 2019 and the end of 2020. After a slight decrease in 2021, a new increase follows, so that at the end of last year the number of insolvencies in IT ends up being over a third higher than in 2019.
The sector marked by the most drastic increase in the absolute number of companies overwhelmed by debts is by far the construction sector. After a slight improvement in 2020, at the end of 2021 there are more than 1,040 insolvencies. In the following year, a jump of 23% is observed, while for the whole year 2023 there are over 1,320 insolvencies. Thus, compared to the period before the pandemic, almost 400 more insolvencies were registered, an increase of 33%.
There are many facts that these numbers and percentages cannot tell, such as the number of people employed in these industries and in companies that have gone into insolvency. To the extent that there is a need to alleviate these debt crises faced by firms in these economic sectors, solutions should take into account the specifics of the industry and the root causes of these phenomena. For example, economists who have studied the link between insolvencies and recessions note that, in retrospect, an analysis of the solvency risk of major U.S. state-backed financial institutions, including those subject to central bank stress tests, would not have provided warnings in due time.
“Risk as a [instituție financiară anume] to be unhealthy is relatively small compared to the risk of the whole group becoming unhealthy together”, the experts conclude.
