Economic Growth in Central and Eastern Europe, But Business Stability Remains Elusive
Rise in Insolvency of Businesses in Central and Eastern Europe, as Reported by Coface
According to Coface's annual report "Cee Insolvencies" in 2024, the economy in Central and Eastern Europe (CEE) bounced back, posting a ### 2.6% GDP growth compared to 0.8% in 2023. Although inflation dipped to 4.6% from a high of 11.2% in the previous year, thanks to energy price drops and supply chain improvements, business resilience remained elusive.
"Despite the economic recovery, we're not witnessing greater business stability," the report warned, highlighting a contradiction between the region's economic recovery and the increasing insolvency rates reported in most countries in the CEE region. Excluding Hungary, where regulatory changes affected the data, insolvencies actually jumped by 3% - from 29,771 in 2023 to 30,680 in 2024.
Mateusz Dadej, an economist for Coface's Central and Eastern Europe region, noted, "After the tumultuous 2023, macroeconomic indicators suggested a ceasefire. But many companies, especially those in manufacturing and transport, had already sustained too many shocks. The rise in insolvencies indicates deeper structural problems and the delayed impact of past crises."
Insolvency Dynamics in Different Countries
- Hungary experienced a 25.5% drop in insolvencies following the normalization of legal procedures after a temporary increase in 2022. Serbia (-12.1%) and Bulgaria (-5.7%) also saw decreases thanks to more stable macroeconomic conditions.
- In contrast, insolvencies increased significantly in Slovenia (+32.4%), Latvia (+24.6%), Estonia (+10.2%), and Croatia (+7.3%). This was attributed to weak domestic demand, cost surges, and structural challenges, particularly in construction and retail.
- Romania saw a 9.4% increase, particularly among medium and large enterprises, against a backdrop of high inflation and fiscal imbalances. Poland experienced a 19% jump in insolvencies, the primary reason being the continued use of restructuring procedures during the pandemic.
- Czech Republic (+1.9%) and Slovakia (-3.5%) saw less significant movements, while Lithuania remained virtually stable (-1%), with insolvencies concentrated in construction and retail.
Deep-rooted Issues Behind Insolvency Rise
Several factors contributed to the rise in insolvencies across the CEE region:
- Misalignment between Economic Recovery and Business Resilience: Although the region experienced a modest economic recovery, it was not sufficient to offset the lingering effects of previous economic hardships, leading to ongoing insolvency issues for some industries[5].
- Sector-specific Challenges: Certain sectors, like construction and retail, faced significant challenges, as exemplified by Slovenia's construction sector, which accounted for a significant portion of insolvency proceedings[1].
- Regulatory Changes: The overall decrease in insolvency cases of 9% is misleading due to regulatory changes in Hungary, which skewed the numbers. When excluding Hungary, insolvencies actually rose by 3% across the region[5].
- Inflation and Interest Rate Pressures: Although inflation was reported to be lower, the legacy of higher interest rates and past inflation continues to put pressure on businesses with high debt levels or tight profit margins[5].
- Mounting Debts and Financial Struggles: The economic downturns in years prior left many businesses with increased debt levels. As the economy grew, these financial pressures became more apparent, exacerbating insolvency rates in countries like Slovenia, Latvia, and Poland[5].
- The increase in insolvencies across the Central and Eastern Europe (CEE) region points to a misalignment between the economic recovery and business resilience, as some industries continue to face the lingering effects of previous economic hardships.
- The finance sector in CEE countries may face mounting debts and financial struggles due to the economic downturns in prior years, as these financial pressures become more apparent as the economy grows, potentially exacerbating insolvency rates.
