Expect an Increase in Eastern European Business Failures
Friday, September 20, 2019
In 2019, GDP growth in Eastern Europe is forecast to decline to 2.6%, from 3.4% last year. Global trade tensions, heightening uncertainties around the U.S.-China trade conflict, along with the risk of a potential “no deal” Brexit, are expected to put many economies in Eastern Europe under severe strain and to trigger a sharp inflection in the insolvency trend in the region, from a 5% decrease last year to a 2% increase in 2019.
Based on the findings of the Atradius Payment Practices Barometer survey conducted among more than 1,500 suppliers in seven countries in Eastern Europe (Czech Republic, Hungary, Poland, Slovakia, Turkey, Bulgaria and Romania), 24.4% of the average total value of the domestic and foreign invoices issued by suppliers interviewed remained unpaid at the due date. This percentage is highest in Turkey (41.5%).
Dimming growth prospects for Eastern Europe are expected to worsen the insolvency outlook. Higher bankruptcy levels this year are expected in Turkey (+10%), Poland (+4%) and Romania (+3%). The manufacturing sector is the most exposed, due to its high integration in the global value supply chain.
Payment defaults by customers negatively affect cash flow and imply the need to make up for liquidity shortfalls to carry on business operations. If access to bank financing tightens in the short to medium term, suppliers surveyed in the region would offset the expected increase in capital costs chiefly by reducing investment in business growth and workforce, this latter through layoffs or hiring freezes.
“The global economy continues to reveal its frailties, and is now on a notably slower growth path,” said Thomas Langen, Senior Regional Director Germany, Central and Eastern Europe of Atradius. “Amid rising geopolitical tensions and ongoing uncertainties, the risk that global trade remains sluggish is growing. This is forecast to weaken economic growth in many Eastern European countries, raising the insolvency outlook over the coming months. Against this backdrop, strategically managing the risk of payment defaults by customers is essential to avoid severe cash flow problems and to pave the way for safe, sustainable business growth.”