Poland is a headlineexample of the countrythat didn’t record reces-sion in recent years. How-ever, in micro termscompanies insolvencieshave been on rise since

2008 and 883 bankruptcies in 2013 iseven the highest result in 9 years history.The decreased internal demand causedless contribution to the country’s GDPgrowth and it was directly perceived by Polish companies. This year brought better outlook with the slow recovery of Eurozone which is the main trading

by Grzegorz Sielewicz Coface Central Europe Economist

partner of Poland and improved labourmarket data which should lead to amomentum for private consumption.The constraint came from a stagnationin Russia which was 5th largest receiverof Polish exports triggered then by theRussia-Ukraine conflict and trade disrup-tions. On the internal side, Polish house-holds have started to increase theirconsumption modestly, focusing moreon daily necessities than durablegoods. It proves they are not convincedof the long-term improvement of theirfinancial situation.

Against the backdrop above, has the rising trend of companies insolvenciesbeen stopped? Have companies suf-fered from a modest improvement ofinternal demand and will they beharmed by uncertainties on the exter-nal side: the stagnation of Russianeconomy and introduced embargo aswell as Eurozone’s disappointingrecovery? And last but not least, whatis the outlook for insolvencies inPoland in the near future?

P

PANORAMA POLANDINSOLVENCIESCOFACE ECONOMIC PUBLICATIONS

OCTOBER 2014

3 Insolvencies Barometer

6Will current externalturbulances affectthe number of insolvencies ?

+Conclusion 9

2On a recovery pathamid external risks

ALL OTHER GROUP PANORAMAS ARE AVAILABLE ONhttp://www.coface.com/News-Publications/Publications

2 INSOLVENCIESPANORAMA

OCTOBER 2014

WILL THE ECONOMIC SLOWDOWN AND TRADEDIFFICULTIES ON EXPORT MARKETS AFFECT THE NUMBER OF INSOLVENCIES IN POLAND?

BY OUR ECONOMIST

« Uncertainties on external markets will havea negative effect on thelevel of companies insol-vencies in Poland »

The insolvency statistics of Polish com-panies finally bring a relief. The risingtrend of bankruptcies initiated in late2008 seems to be discontinued. Polishcompanies have had to face in thatperiod volatilities of domestic andexternal markets after a collapse of theLehman Brothers, double-dip recessionin the Eurozone – their main exportsdestinations as well as a domestic slow-down with subdued local demand.Then, better prospects of domestic andexternal situation translated not only tostabilization of insolvencies but even itssizeable decrease. At the same time, the construction sec-tor has finally stopped to be a long-termnegative performer of insolvency statis-tics. It suffered from a contraction froma previous booming period as well assevere competition and a necessity ofaccepting low or even negative marginsto remain in business. Currently, brighter prospects includecompanies’ intensions to rebuild invest-ments in fixed assets and a reboundinghousing market, both supported by the

historically low interest rate environ-ment. Nevertheless, the business con-fidence is constrained currently byuncertainties coming from an externalside – prospects for the Eurozone eco-nomy and the neigh-bouring Russianmarket. Our Panorama focuses onpossible external developments ofcurrent economic conditions with ourassumptions on their impact on thelevel of companies insolvencies inPoland. But before that, the publica-tion deals with insolvency statistics inthe first half of this year with sectorialinsights.

Grzegorz SIELEWICZEconomist Central Europe grzegorz.sielewicz@coface.com

Many economies across the globe have experi-enced turbulences in recent years. In that periodthe Polish economy was stable and it didn’trecorded recession either in the first stage of crisistriggered by the collapse of Lehman Brothers bankor its further deepening when the Poland’s maintrading partner Eurozone fell into double-diprecession. Stable private consumption has beenone of the crucial supportive factors and con-tributed positively to GDP growth. The Polisheconomy is relatively less open than othereconomies in the Central and Eastern Europe(CEE) region.

Exports represent just 48% of the country’s GDPin 2013 whereas that ratio was 96% in a case ofHungary and 79% in a case of the Czech Republic.Nevertheless, the latter economies are smallerones and they cannot benefit from a significantnominal contribution of domestic consumption.Poland with the 38 million inhabitants can rely ofthat factor and remains quite independent fromwhims of external demand.

Chart 1: Poland’s GDP growth rate (%)

* Coface forcasts

Source: Central Statistical Office, Coface

1 ON A RECOVERY PATH AMID EXTERNAL RISKS

6

5

4

3

2

1

0

2008 2009 2010 2011 2012 2013 2014* 2015*

5.1

1.6

3.9

4.5

2.0

1.6

3.13.5

3INSOLVENCIESPANORAMA

The year 2013 made a different picture. House-holds reduced their shopping and focusedmainly on daily necessities. Their concernsincluded not only the level of their wages butalso maintaining their jobs in general. The unem-ployment rate increased from the 2009 averageof 8% to nearly 11% recorded in the first half of2013 (according to Eurostat data)(1). The latterperiod was the most difficult one since the finan-cial crisis has evolved. The Polish economy expe-rienced flat dynamics of private consumptionand contraction of fixed assets investments.Exports remained growing however just by weak2% facing low demand from the Eurozone areawhere Poland sends more than half of itsexports. Therefore signs of Eurozone recoveryindicated in the second half of 2013 madebrighter outlook for Poland as well as other CEEeconomies.

Germany remains the most important tradingpartner in the CEE region. Poland exported toGermany goods worth EUR 39 billion in 2013, i.e.¼ of total exports. European Union countries arethe main receivers of Polish exports (a share of75% of total exports) however the bottom of top5 classification took Russia with 5.3% of totalPolish exports in 2013.

The first half of 2014 brought improvement inthe Polish domestic demand. Companies havestarted to assess better their perspectives facingmore demand for their products and servicescoming from Western Europe. They were willingto make new fixed assets investments (growthof 9.3% y/y in 1H 2014) as well as hire newemployees. Households benefited also fromgrowing wages which translated to increasedpropensity to spending. The Polish economygrew by 3.4% y/y in the first half of 2014 withrebalancing from net exports towards privateconsumption.

(1) Labour Force Survey. According to the national methodology the unemployment rate exceeded 14% in the first quarter of 2013.

Last months showed that some dark clouds cove-red a bright sky of Polish recovery. The Polishlabour market remains to be supportive with adecreasing unemployment rate and growingwages. However, detailed retail sales data provethat households are still reluctant to significantlyincrease spending on durable goods. It confirmsthat their confidence is not at full recovery, espe-cially that credit growth dynamics remain at pos-itive but still at low levels. The external sidegenerates more risks than opportunities. Tradedisruptions include a slowdown of neighboringRus-sian economy and recently implementedembargo on selected products. More to that, therecent per-formance of the most important trad-ing partner, the Eurozone, shows that the momen-tum of its recovery has been lost. The Germangrowth contracted by 0.2% q/q in Q2 2014whereas the French one stagnated in both quar-ters of this year.

Chart 2: Exports to GDP ratio in selected CEE

economies (2013)

Chart 3: Companies insolvencies in Poland

Source: Eurostat

Source: Coface

900

800

700

600

500

400

300

200

100

0

100%

80%

60%

40%

20%

0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

42%

48%

79%

86%

96% 98%

181

184

212

216

129

9794

182 144187

235 184

224

178

229

241

229

218

233

191

188

169

179

159

173

179

186

189

134

115

101

101

120

118

112

138

155

154

Q1 Q2 Q3 Q4

Romania

Poland

Czech Rep.

Lithuania Hungary

Slovakia

Insolvencies Barometer - How muchhas macro environment impactedinsolvency statistics?

The challenging macroeconomic conditions lastyear have impacted business insolvencies nega-tively. Companies defined the year 2013 as a dif-ficult period in their business activities as theyexpe-rienced decreased internal and externaldemand. The number of insolvencies havepeaked in the middle of 2013 – it reached thehighest level since 2005 with 470 insolvencies injust the first half of 2013. Then, the improvedeconomic prospects were reflected in compa-nies insolvencies which recorded a sizeabledecrease at the end of last year. Never-theless,it should be noted that December data wereaffected by a holiday period which due to calen-dar differences was longer than usual.

The improvement is being continued. First monthsof 2014 with rising internal demand and growingexports were beneficial for Polish companies. Thefirst half of 2014 brought 402 insolvencies, i.e.11.5% less than a year before. On the other hand,the number of insolvencies is still twice as high asin the pre-crisis first half of 2008.

A Sector Analysis- Insolvencies still on rise in some sectors

ConstructionFinally insolvencies of the construction sector,which was a long-time negative performer, havestopped to increase. Moreover, current statisticsshow that there are less insolvencies of con-struction companies by 21% than a year ago.Nevertheless, there are less companies active inthe market compared to few years ago. Theyhave been decimated by huge insolvencydynamics which started in 2009 (a heat mapbelow). Positive news include also restrainingfurther insolvencies of companies linked with theconstruction sector. Last year many manufactur-ers, suppliers and distributors of constructionmaterials, steel and wooden constructions andreinforcing bars as well as machinery manufac-turers experienced delays in payment schemesand had to file for insolvency. This ‘dominoeffect’ triggered the highest insolvency levelsamong manufacturing companies in 2013.

ChemicalsThe sector generated an increase of insolvenciesby 25% in the first half of 2014 however it resultsfrom a low number of entities of that sector instatistics. In nominal terms, it equaled to onlyone more insolvency compared to a previousyear. The significant part of the chemicals sectorin Poland includes producing of fertilizers with a

strong dependence on gas as the main resourceused in production. Current risks relate to anuncertainty of supply from Russia as well as thelevel of gas prices that Poland will be charged.In the past there have been crucial differencesbetween prices paid by receivers of the Russiangas. Poland tries to diversify sources of gas sup-ply however it will not be possible to abandonimports from Russia completely.

RetailThe households’ low propensity to spend con-tributed to rising insolvencies of retail sector(+27% y/y). The consolidation process of thesector is ongoing with severe competition ofcompanies fighting for profits amid a necessityof accepting low margins. Consumers are stillvery cautious in their purchasing decisionsdespite improvement of the labour market. Theweak demand for durable goods is confirmed byone of the biggest insolvency this year – Domex,the owner of Avans stores, which included 250stores with 3,000 employees, was declaredinsolvent in May. According to estimations thecompany indebtedness exceeded EUR 106 mil-lion and it recorded a loss of EUR 4.8 million atend 2013.

The heat map below confirms that temporaryperiods of decreased insolvencies were not suf-ficient to turn into sustainable improvement ofthe sector.

4 INSOLVENCIESPANORAMA

Chart 4: Companies insolvencies by sectors in 1H 2014

Sector Insolvencies Change y/y Sharein 1H 2014

PRODUCTION, including: 112 -25% 27.9%

Manufacturing including, but not limited to: 100 -29% 24.9%

Production of food products and beverages 21 0% 5.2%

Production of metals and fabricated metal products 20 -38% 5.0%

Production of machinery, equipment and electrical devices 14 -7% 3.5%

Production of rubber and plastic products 7 17% 1.7%

Production of chemicals and chemical products 5 25% 1.2%

Production of paper and paper products 5 -50% 1.2%

Production of clothing and textiles 5 -44% 1.2%

Production of furniture 4 -67% 1.0%

Production of wooden products excluding furniture 4 -64% 1.0%

Production of goods from other non-metal natural resources 3 -50% 0.7%

(including construction materials)

Other manufacturing 7 -42% 1.7%

TRADE including, but not limited to: 104 -6% 25.9%

Wholesale 62 -13% 15.4%

Retail 33 27% 8.2%

CONSTRUCTION 84 -21% 20.9%

TRANSPORT 18 0% 4.5%

Other sectors 84 18% 20.9%

TOTAL 402 -12% 100.0%

Source: Coface

TransportThe insolvencies of transport companies havestood at the same level as a year ago. Howeverthe heat map shows that insolvency dynamics ofthe transport sector have significantly fluctuatedin previous periods. The sector’s performance issubject to external demand due to a strongexposition of Polish transport companies to pro-viding international services. The current exter-nal trade disruptions point to increase ofinsolvencies in next quarters. Moreover, the com-petition in that sector is also strong and itimposes the acceptance of lower margins amidstable fixed costs. Moreover, the transport sectorrequires regular investments, especially in vehi-cle fleets in the case of road goods transport.This is determined not only by the age of thefleet but also imposed by regularly increasedEuropean emission standards, with the currentEuro VI standard required for new heavy dutyvehicle registrations as of 1 January 2014.

Insolvencies by business legal form

If we look at different legal forms of insolvencies,it can be noticed that all forms recorded adecrease of insolvencies, except of limited part-nerships (a business form in which partners areliable only to the extent of invested money) and cooperatives (asso-ciation owned and oper-ated by members). On the other hand, the lim-ited liability companies (a legal form thatprovides limited liability to its owners) weregoing bankrupt the most frequently, what wasalready experienced in previous statistics; how-ever their share decreased to 55% compared to66% in 2011. There were less insolvencies of soletraders but their share has been rising from 16% in 2011 to one quarter of total currently. Thesame phenomenon is experienced by joint-stockcompanies which constituted 1 out of 10 all insol-vent companies.

5INSOLVENCIESPANORAMA

Chart 5: Heat map of insolvencies by selected sectors in respective semesters (dynamics,

Chart 6: Insolvencies by business legal form

Source: Coface

Legal form Number of bankruptcies Change y/y Share in totalin 1H 2014

Ltd. 221 -15% 55%

Sole trader 100 -9% 25%

Joint-stock company 40 -11% 10%

Registered partnership 19 -14% 5%

Limited partnership 12 +50% 3%

Cooperative 9 +80% 2%

Other forms 1 -83% 0.2%

Total 402 -11.5% 100%

1H 2009 2H 2009 1H 2010 2 H 2010 1H 2011 2H 2011 1H 2012 2H 2012 1H 2013 2H 2013 1H 2014

Production of metals andfabricated metal products

Production of machinery,equipment and electricaldevices

Production of woodenproducts excluding furniture

Production of furniture

Production of clothing andtextiles

Production of rubber andplastics products

Production of food productsand beverages

Wolesale trade

Retail trade

Transport

Construction

Real estate market activity

Below -50% -50% to -20% -20% to -5% -5% to 5% 5% to 25% 25% to 50% Above 50%Source: Coface

The current external situation generates risks forthe Polish economy. In August 2014 Russia intro-duced embargo on meat, fish, fruit, vegetables,milk products from EU, US, Australia, Canada andNorway as retaliation measures for US/EU sanc-tions. The Russian embargo makes a constraint ona part of Polish exports. It includes just 0.5% of Pol-ish total exports but more than 10% of its exportsto Russia. Going further 80% of Polish agro-foodexports to Russia are currently banned. Many Polish companies which focused on trading withRussia are forced now to look for other markets.

Before the introduction of retaliation measures byRussia, Poland has already experienced periodicdifficulties in trade with its eastern neighbor. Tem-porary bans for particular products have beenalready implemented in the past and made manycompanies ready somehow for such trade disrup-tions. Nevertheless, the current measure is a wideembargo with one-year validity, if not waivedbefore. The slowdown of the Russian economyalready brought a contraction of Polish exports. InEUR terms they slumped by 10.5% y/y in theperiod of January-July 2014, moving Russia from5th to 6th rank in Poland’s top trading partners byexports. In macro terms, such contraction of Polishexports is not dangerous. Polish external trade toRussia decreased by EUR 500 million in January-July 2014 compared to a corresponding period ofa year before.

However facing increased demand coming fromthe Eurozone, Polish exports to Germany werehigher by EUR 1.9 billion in the same period mak-ing nearly four times compensation of contractionof Russian exports. That optimistic picture turnsinto pessimistic ones when concluded in microterms. Many Polish companies have had ongoingtrade relations with Russian counterparties forseveral years. If the slowdown of Russian economyis extended by embargo actions, it translates toclosing a sizeable market for Polish entities. Alter-native markets cannot be defined and targetedday by day, especially it concerns a huge neigh-boring market.

On the other hand, the recent external risksinclude also a disappointing recovery of the Euro-zone where Poland sends more than half of itsexports. The second quarter of this year broughta slowdown of the main Eurozone economiesaffecting also other economies cooperating withit. Four out of five Poland’s top 5 exports destina-

tions recorded flat GDP growth at most in quar-ter-on-quarter terms: Germany -0.2%, the CzechRepublic 0%, France 0%, Italy -0.2%. As a conse-quence, Polish exports dynamics were lower in acase of those markets in the second quarter of2014. Prospects of a continued slowdown of theEurozone put a pressure on the Polish economyand many companies trading and cooperatingwith western entities. Since trade relations withEurozone, especially exports to Germany are so significant, how does it impact companiesinsolvencies? Is deterioration in external trade toRussia affect the level of bankruptcies in Poland?In order to measure it we will calculate a correla-tion coefficient (2) to analyze links between Polishexports to Germany and Russia and dynamics ofcompanies insolvencies in Poland. The sample ofdata includes data starting Q1 2009 till Q2 2014.

Not surprisingly, Polish total exports correlatestrongly with exports to Germany. The correla-tion coefficient equals to 0.96 if analysed from2009 till Q2 2014. However, the correlation coef-ficient in a case of exports to Russia in the sameperiod is relatively strong as well and it equals to0.84. Does it mean that fluctuations of exportscontribute to the level of insolvencies in Poland?The most impact still comes from internal con-sumption as Poland is a country with a signifi-cant consumer base and it is not exposed tointernational trade as much as most of otherCEE economies. However, external businessactivities of Polish companies remain significantfor their overall performance. The correlationcoefficient of Polish exports dynamics to Ger-many and the level of companies insolvenciesreached -0.69 whereas in a case of exports toRussia it amounted to -0.65 in the analysedperiod. Polish companies are willing to takemore exposition on foreign markets diversifyingtheir consumer base between domestic andexternal markets.

2

(2) The correlation coefficient is a measure that determines the degree to which two variable’s movements are associated. It varies from -1 to +1 whereas -1 indicates perfect negative correlation and +1 indicates perfect positive correlation.

6 INSOLVENCIESPANORAMA

WILL CURRENT EXTERNAL TURBULANCES AFFECTTHE NUMBER OF INSOLVENCIES IN POLAND?

Chart 7: Poland’s top 5 trading partners (by exports in 2013)

Chart 8: Yearly dynamics of Polish exports to Germany and Russia

and companies insolvencies

Source: Eurostat, Coface

Trading partner Share

Germany 25.1%

UK 6.5%

Czech Republic 6.2%

France 5.6%

Russia 5.3%

Source: Central Statistical Office

-30%

-10%

10%

30%

50%

70%

90%

40%

20%

0%

-20%

-40%

-60%Q12009

Q42009

Q32010

Q22011

Q12012

Q42012

Q32013

Q22014

Exports to Gremany

Exports to Russia

Insolvencies dynamics(rhs, inverted scale)

Nevertheless, it results in higher dependence onthe performance of economies abroad. If tradingpartners have to face deteriorated economicconditions, such a slowdown also affects Polishcompanies leading even to a serious decrease oftheir payment solvency. Indeed, the coefficient ofdetermination confirms that exports from Polandcontribute considerably to dynamics of localinsolvencies (3). In a case of exports to Germany it was 0.48 and in a case of exports to Russia itwas 0.42 in the analyzed period. Concluding, theperformance of the German economy is an impor-tant factor for Poland. Those links are visible notonly in macroeconomic terms but also withincompanies. Polish insolvencies are sensitive forexports coming from Poland to Germany as it isthe most important destination of Polish exports.However, the external trade links with Russia,which is the Poland’s 6th biggest trading partnerby exports volume recently, make a relatively sizeable effect on Polish insolvencies as well. Even in a case of less open economies like Poland,the deterioration of external trade can trigger the number of insolvencies. The contraction ofexports increases risk of many local companies tosome extent, especially if they are directly coop-erating with their counterparties which suffer fromthe economic slowdown.

If exports contribute to dynamics of insolvenciesin Poland, what level of companies bankruptciescan be expected as a result of implications com-ing from the external side? First of all, the currentmacroeconomic outlook for Poland’s crucial trad-ing partners is mixed.

The sluggish recovery of Eurozone which can beeven defined as a temporary slowdown was expe-rienced in the second quarter of 2014. The thirdquarter was still challenging however Coface fore-casts that the whole this year brings improvementwith the Euro-zone growth rising from -0.4% in 2013 to 0.9% in 2014. In the same period theRussian slowdown will cause that the growth rateof 2014 will not rise from 1.3% recorded last year.

Theoretical considerations of relations betweenPolish insolvencies and economic performance ofexports markets lead to calculating how much adecrease of GDP growth of main trading partnerswill affect the level of bankruptcies in Poland. AsGermany is Poland’s crucial trading partner suchrelation is much higher than in a case of the out-come of Russian economy. A decrease of 1 p.p. ofgrowth in Germany would lead to increase of Polish insolvencies by 4% whereas the samedecrease of Russian growth would lead to insol-vencies in Poland higher by 1.3%.

What dynamics of insolvencies can be anticipatedin Poland due to performance of main exportsmarkets? As recent developments in economiesof Poland’s main trading partners generate mixedsignals regar-ding their future progress let usassume three external scenarios and then checkwhich one is the most likely:

1) RecessionThe Eurozone does not come back on the recov-ery track and falls into recession. Industry indica-tors record weaker results, households arereluctant to increase their consumption as theyare afraid about losing jobs. The ongoing pres-ence of Russian army in eastern Ukraine makesEU/USA to implement further sanctions. Russiaimplements further retaliation measures. Theslowdown in Russia turns into recession.The dete-riorated economic conditions on crucial exportsmarkets result in an increase of insolvencies inPoland by 21%.

2) StagnationThe economy of Eurozone including Germany is not improving and it generates flat growth.German exports grow but at weak levels. Theslowdown in Russia is anticipated to remain overnext quarters. The conditions above would makeinsolvencies in Poland growing by 8%.

3) Strong recoveryThe German exports benefit from strong demandon worldwide markets as well as internal demand.Other Eurozone economies come back on thesustainable recovery track. Russia moves back itsmilitary troops from Ukraine what makes EU/USAto waive sanctions. As a consequence Russiawaives embargos. The Russian economy escapesfrom a slowdown. The improved economic condi-tions on crucial exports markets result in adecrease of insolvencies in Poland by 19%.

7INSOLVENCIESPANORAMA

(3) The coefficient of determination indicates how much of the variability of a factor can be caused or explained by its relationship to another factor. It variesfrom 0 to 1 whereas a higher value indicates the stronger relationship between two factors.

Chart 9: Coefficients of relations of Polish exports

to insolvencies

Chart 10: Coface growth forecasts

Source: Coface

Indicator Correlation Coefficient of coefficient determination

(R) (R2)

Total exports / Exports to 0,96 0.92 Germany

Exports toGermany / Polish -0.69 0.48insolvencies

Total exports / Exports to Russia

0.84 0.70

Exports to Russia / Polish insolvencies

-0.65 0.42

2014 2015

Eurozone 0.9% 1.3%

Germany 1.6% 1.8%

Russia 0.0% 1.0%

Poland 3.1% 3.5%

Coface GDP growth forecast

Source: Coface

Assuming the current Coface forecasts of GDPgrowth presented in chart 10, the scenario of stag-nation of the external side is the most likely. The slowdown of Russian economy is already con-firmed in hard data whereas deterioration in tradewith western economies and introduced embargowill extend the stagnation period. At the sametime a disappointing recovery of the Eurozonewith a weak progress of its main engine – the Ger-man economy makes a down-side risk for currentforecasts, if a positive rebound is not recorded innext months. As such tensions on the external sidewill cause companies insolvencies in Poland risingby 8% which will be visible in insolvencies statis-tics in the first quarter of 2015 assuming a delayof implications of macroeconomic conditions forthe level of bankruptcies. On the other hand, the

scenario of deterioration of Eurozone and Russ-ian economies cannot be rejected. The ongoingpresence of Russian army in eastern Ukraine cantrigger introducing further sanctions by the EU and US. If so, additional Russian retaliationmeasures are likely to be implemented with anegative impact on several sectors of economiesof all parties. Then the stagnation period wouldtransform to recession in economies crucial forPolish companies.

Predictions above on dynamics of insolvenciesin Poland assume only the impact of externalside on bankruptcies with all other things beingequal. As such the influence of domestic side(consumption, fixed asset investments, interestrate changes etc.) is excluded from the analysis.

8 INSOLVENCIESPANORAMA

Chart 11: Scenarios affecting the level of companies insolvencies in Poland

Scenario for Details Forecasted increase (+) / decrease (-) external side of insolvencies in Poland

1) Recession Eurozone incl. Germany falls into +21%

recession, Russian recession

2) Stagnation Germany and Russia generates flat growth +8%

3) Strong recovery EU/USA waves sanctions, Germany boosts +19%

Eurozone growth, Russia waves embargo

Source: Coface

Companies insolvencies in Poland has finallystopped rising since the trend was initiated in 2008.The number of insolvencies is still high – bankrupt-cies of 402 companies were announced only in thefirst half of 2014. On the other hand, such level ofinsolvencies has to be compared to the 1.8 millionactive companies in Poland. Nevertheless, officialinsolvencies are just a tip of an iceberg. In Polandthe insolvency procedure is still not used widely.Lots of companies are just going out of business,liquidating or acquiring by other entities. Thereforeit makes more sense to analyse dynamics of insol-vencies which reflect changes of companies situa-tion in Poland over time. The improved economicconditions have been beneficial for Polish compa-nies which recorded a decrease of insolvencies by11.5% in the first half of 2014 compared to a corre-sponding period of last year.

The initiated recovery of the Eurozone in the sec-ond half of last year and then improvement of thedomestic market was supportive for Polish compa-nies. According to Coface analysis the changes ofmacroeconomic situation are visible in insolvencystatistics with a delay of one or two quarters. Assuch a decreased number of insolvencies wasexperienced at the end of 2013 and then in thecourse of first months of this year. Polish compa-nies could not only benefit from rising consump-tion of households but also higher demand comingfrom its main external trading partner Eurozone.

Nevertheless, the households’ increased propen-sity to spend has not recovered fully so far.Although the labour market generates positiveperformance with a decreasing unemploymentrate and growing wages, demand for durablegoods is still relatively low. Households are focus-ing more on their daily necessities and such phe-nomenon points they are not convinced of thelong-term recovery of the economy. As such theretail sector remains to be a subject to ongoingconsolidation processes, intense competition anda necessity of accepting low margins. Those chal-lenging market conditions were harmful for anumber of companies of the retail sector whichgenerated the highest dynamics of insolvenciesin the first half of 2014.

Better prospects came for manufacturing com-panies with insolvencies falling be nearly 30% inthe first six months of this year compared to a

CONCLUSION4

year before. The outlook for them becomes lessoptimistic concluding recent performance onexternal markets crucial for Polish companies: itincludes mostly a slowdown of Eurozone with thePoland’s main trading partner Germany recordinga growth rate of -0.2% q/q in the second quarterof this year. Polish exports to Russia have alreadycontracted due to a slowdown of Russian econ-omy. Moreover, the Russia-Ukraine conflict puts apressure not only on business and consumer con-fidence as it concerns neighboring countries butit also results in deteriorated trade volumes withthe official embargo introduced by Russia onselected merchandise. The latter issue will impacteven companies exposed just to a local market asthere will be an oversupply of some agro-foodproducts domestically affecting prices down-wards. Poland already recorded a first time defla-tion since the collapse of commu-nism in July thisyear which is highly probable to be kept in the fol-lowing months due to oversupplies and contin-ued stabilization of commodity global prices.

The modest recovery of the internal situation onthe one hand and turbulences on external mar-kets on the other hand have an effect on Polishcompanies. According to Coface analyses themost likely scenario of impact of the external side for Polish insolvencies assumes bankruptciesrising by 8% due to the stagnation of Poland’scrucial exports markets. However, if tensionsbetween the EU and Russia escalates and/or theEurozone slowdown deepens, it will be reflectedin further deterioration of companies situationtriggering an additional negative impact to insol-vencies in Poland. Whereas external vulnerabili-ties affect negatively the level of companiesinsolvencies, it should be noted that the maininfluence comes from the performance of Polishdomestic economy, especially its internaldemand. Nevertheless, decreased demand com-ing from external trading partners will hamper thedomestic recovery by lower orders for Polishindustry and services. As a consequence, it willaffect companies business development and theirwillingness for increasing capacities and newinvestments in fixed assets. The rising companiesinsolvencies in Poland in a medium term wouldbe emphasized more if companies experiencealso a slow improvement of internal demandresulting from cautious spending of money bylocal households.

9INSOLVENCIESPANORAMA