Poland insolvencies Focus: Are restructuring proceedings the remedy?
Business proceedings aimed at insolvencies and restructuring have been on rise in Poland this year. Over the course of the first three quarters of 2017 they increased by 14% compared to the same period last year. Most of the sectors in Poland experienced an increase in the number of proceedings. In contrast, the country’s macroeconomics have been performing well. GDP growth strengthened to 4.0% y/y in the first half of 2017. Economic activity is being driven by household consumption, which remains the main growth engine. Household consumption has benefitted from a further fall in the unemployment rate, which has broken previous record lows. Polish households are also enjoying fair growth in wages and the lowest central bank interest rates in history. Unsurprisingly, within this positive economic environment, consumer confidence indicators are high. Slowly, but gradually, fixed asset investments are becoming more evident and are positively contributing to Polish growth. After last year’s contraction (due to a switch to the new EU budget), investments have started to be fuelled again by infrastructural projects and increasing business capacities. As a result, domestic demand - along with stronger exports supported by strengthening global trade dynamics - is secure enough to keep Poland’s GDP growth at solid levels over the following quarters. This positive economic activity will continue to support companies in Poland, but the first signs of an overheating economy (such as supply constraints and labour shortages) will bring challenges for companies and the pace of expansion. Coface forecasts that GDP growth will reach 3.9% this year, before weakening to 3.5% in 2018. The favourable macroeconomic environment has been supporting Polish businesses. The cross-sector average shows that, during the first half of 2017, companies were able to generate both higher revenues (+9.6%) and profits (+5.4%). Nevertheless, profitability indicators have not been overly impressive. The intense competition present in many sectors is hampering attempts to increase margins, despite growing demand and revenues. The retail sector is an illustration of this trend. Although retail has been benefitting from increased consumer spending, the sector experienced a 59% increase in insolvencies and restructuring procedures during the first three quarters of this year.
The amended legal regulations that were implemented at the beginning of last year are still affecting the statistics on proceedings. Separated acts on bankruptcy and restructuring laws have given priority to company restructuring procedures, with the aim of helping businesses return to effective operations. As expected, restructuring procedures have become even more frequently used this year. Whereas the share of restructuring within the total number of proceedings reached 23% during the first three quarters of 2016, it surged to 37% in the same period of 2017. Restructuration procedures will remain popular among businesses suffering from liquidity problems. Coface forecasts that the total number of insolvency and restructuring proceedings will be 8% higher at the end of 2017 than in 2016. They will then decrease by 0.7% during the course of 2018. A rebound in investments is creating momentum for the construction sector’s recovery, although improvements in its profitability and liquidity will be gradual for some time. Retailers will continue to benefit from solid household spending, but intense competition and pressure on margins will affect many entities, especially the smaller ones. Although the trade sector enjoys a favourable environment, thanks to robust private consumption, it will also remain a fixture in the insolvency and restructuring statistics.
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