Business bankruptcies soar in France: +34.6% in the first quarter

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The indicators turn red one after the other. After a slowdown in the French economy expected in the first quarter, the horizon is darkening for French companies. Boosted by emergency measures of “whatever the cost”, many sectors were able to take advantage of the hibernation of the commercial courts for many months.

With the gradual disconnection of all these crutches and the deterioration of the economy linked to the war in Ukraine, most economists expect a rise in bankruptcies. In this very uncertain environment, there is a rise in fear of stagflation and fears of recession. The consequences of the war in Ukraine can give a knockout blow to the world economy”, said Oxford Economics economist Daniela Ordonez in a recent press briefing.

“No territory spared”

In its latest report unveiled on Monday April 11, the research firm Altares, specializing in business data, recorded a 35% surge in business bankruptcies between January and March compared to the first quarter of 2021. “In the first quarter of 2022, the noose of the health crisis loosened and aid stopped. A return to a form of normality which also implies a resumption of defaults. The rise is therefore beginning and it is already very clear in sectors that rely on the resumption of consumption habits such as going to the restaurant or the hairdresser. No territory is spared by the phenomenon”, emphasizes Thierry Millon, Director of Studies at Altares.

The outbreak of the war in Ukraine and its economic consequences on the Old Continent could accelerate the difficulties for a good number of sectors. “At the start of 2022, confidence in the future was gaining ground: cash levels and well-filled order books suggested a recovery in the economy. However, since February 24 and the start of the Russian invasion of Ukraine, the horizon has darkened: soaring energy prices, supply difficulties, shortages of materials, rising inflation packs … so many signals that encourage caution”, he adds. The expert also does not foresee a wave of bankruptcies in the coming months. With the approach of the second round of the presidential election scheduled for April 24, this recovery in the first quarter could overshadow the results of outgoing President Emmanuel Macron.

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An increase still lower than the pre-crisis level

The number of failures jumped compared to the first quarter of 2021, going from 7,406 to 9,972, an increase of 34%.6%. However, it remains well below the pre-Covid levels recorded in 2018 (14,698) and 2019 (14,146). It seems that young companies are the most affected by this movement of bankruptcies. Indeed, almost half of the companies that filed for bankruptcy during the first quarter were created less than five years ago.

Those that were registered just before the start of the pandemic or during the health crisis suffered particularly (+52%). “The difficulties of young companies are particularly marked in “multi-department store” activities (mainly general food stores) where defects are three times more numerous this quarter; but also in catering (+180%), where the number of procedures was exceptionally low a year ago”, point out the authors of the study.

SMEs on the brink

By company size, small and medium-sized enterprises (SMEs) with less than 50 employees face many more difficulties than larger ones. The number of insolvencies thus jumped by 56% between January and March compared to the first quarter of 2021, exceeding its pre-crisis level. On the other hand, companies with more than 50 employees seem to resist this surge in bankruptcies.

Trade and restaurants hit hard

The other lesson of this study is that activities aimed at consumers are at the forefront. These are mainly trade, catering and services to individuals. In general food (+83%) or the clothing trade (+34%), the increases are dizzying.

For catering, this increase is not really surprising given the long months of closure of all establishments. Many restaurateurs had expressed strong fears when government aid was disconnected. Added to this were the large number of resignations and the severe recruitment difficulties since the fall of 2021.