Business bankruptcies are increasing rapidly. According to figures from the Banque de France, almost 60,000 failures will have been recorded in 2023, an increase of a third in one year. The speech from the Banque de France is intended to be reassuring and points to a catch-up effect compared to the “Covid period”. It is true that, from 2020 to 2022, the number of failures had dropped drastically to around 30,000 per year. Covid had frozen the entire economy, including its negative developments.
Concretely, public aid and PGEs, these loans guaranteed by the State and subscribed by 800,000 companies, have placed our economy under a perfusion of public and private debt. Companies which, according to the spontaneous laws of the economy, should have gone bankrupt in 2021 or 2022, were temporarily saved by “whatever it takes” and by the banks. Since then, public aid has been lifted and managers have started to reimburse the PGEs. The sea of debt recedes and lets unprofitable businesses run aground. The Banque de France is therefore right to emphasize this catch-up effect, which is not worrying in itself.
Since October 2023, the situation has changed
However, this increase in bankruptcies can no longer be explained exclusively by the end of the “Covid period” and the return to normalized economic functioning. Denis Ferrand, at Rexecode, carried out an enlightening calculation. It analyzed the evolution of the number of bankruptcies excluding micro-enterprises, therefore for VSEs, SMEs, ETIs and large companies, and dated the moment from which their number became greater than the sum of their structural level and the lack of failures. observed between 2020 and 2022 compared to the normal level. The date that stands out is October 2023. Thus, for three months, business bankruptcies no longer compensate for their low number during the Covid period but reflect a new fragility of the French economy.
At first glance, this fragility is not difficult to identify. The rise in energy prices and supply costs, salary increases and the rise in interest rates have caused companies’ variable costs to jump, but also their fixed costs. At the same time, activity in the country has slowed. If we add the increase in payment deadlines which weighs on the cash flow of SMEs, we obtain all the explanatory elements for this increase in failures. Certain sectors are particularly suffering. This is the case of real estate development, penalized by the housing construction crisis, and of commerce, handicapped by the negative consequences of inflation on purchasing power. This type of bankruptcies could return in 2024. Indeed, the inflationary fever seems to be subsiding, while wages are dynamic, which will revive purchasing power and consumption. As for the decline in interest rates, it could restart housing construction.
AI will lead to a giant reallocation of capital
But some of these failures also sanction the structural inadequacy of the positioning of certain companies in response to consumer demand. Clothing and furniture brands are clearly destabilized by the growth of online commerce. In this regard, the most spectacular is to come, with the rise of generative artificial intelligence. In 2024, sectoral “ChatGPTs” will multiply. The digital giants, who have fallen behind OpenAI, the parent company of ChatGPT, will market “AI executive assistants”, “AI payroll managers”, “AI travel agents”…
Many business models will find themselves unsuitable, which will lead to a giant reallocation of capital. We are entering a cycle of Schumpeterian failures on an unprecedented scale. This is not necessarily a problem for France if our country is capable of directing its savings towards innovation, training its employees for the professions of tomorrow, and debureaucratizing in order to free entrepreneurial creation. Here is a useful program to fill the last three years of a five-year term which is looking for itself more than ever.
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