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Insolvencies in the construction sector in France: breaking all dangers

Insolvencies in the construction sector in France: breaking all dangers

In this Panorama, you will find the Coface barometer, which analyzes the evolution of French insolvent companies between November 2012 and October 2013. With a 4.3 % increase during this period, the number of insolvencies (62 431) is now close to the historical peak on the top of the 2009 crisis. However, their financial cost (outstanding amounts of insolvent companies) fell by 7.4%. Now France presents, for «business risk», a more traditional situation with Intermediary size companies less affected (-29%), after having been particularly penalized in the first part of the year, to the detriment of most affected SME / micro-enterprises.


We then publish a study on insolvencies in the French construction sector, overrepresented in insolvencies compared to it weight in the economy. Where does this fragility come from ? First the structure (composed mainly of very small companies) and the financial situation (with profitability decreasing alarmingly and more strongly than the average of French companies) of the construction companies are playing a role. The property market is not so favourable, as shows the evolution of housing permits and the prices. A statistical analysis underlines that lower prices are associated with higher insolvencies.
Hence the slight expected increase in GDP in France in 2014 not benefits the construction. An expected correction of prices though slight, will cause a further increase in insolvencies in the construction sector in 2014.


Insolvency Monitor/Autumn 2013

The number of insolvencies is showing a significant increase: 62,431 in total, representing a 4.3% rise year-on-year (+ 4.2% since January 2013), which is evidence of the continued fragility of the business companies in France. Coface notes that SMEs are the hardest hit. In fact our size-indicators show that MSBs are less affected, with the cost of insolvencies down 7.4% year-on-year. Indeed, the number of insolvencies amongst MSBs is falling (-29%). Thus, Coface is seeing a return to a less atypical situation for French insolvencies.


Insolvencies in the construction sector in France: breaking all dangers

Construction lies at the heart of the French economy. As regards households, 62% of the population claimed to be property owners in 2013, making them vulnerable to changes in real estate prices. Non-property owners are also susceptible to changes in housing prices: the median French household devotes 18.5% of its budget to housing. On the corporate side, the construction sector includes more than a sixth of French companies.
Today this sector is faced with a paradoxical situation: the real estate market in France has certainly not suffered a marked cor-rection following the 2008-2009 economic crisis, in contrast to most other European countries. Yet despite this resilience, the sector accounts for more than 30% of total insolvencies in France. So how can we explain this overrepresentation of the sector as regards insolvencies, even when the economic outlook is favourable? This question is all the more crucial as the sector is currently slowing, faced with apathetic growth and high unem-ployment. To find a response, we will first present recent trends in insolvencies in the construction sector in France, and then analyse its distinctive financial fragility. We will then detail the out-look for real estate prices in 2014, and their influence on insolven-cies in the construction sector.

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