Half of EU’s Small Businesses Risk Bankruptcy

Half of EU’s Small Businesses Risk Bankruptcy

According to a survey released on Thursday, 22nd October 2020, by management consultancy “McKinsey & Company”, over half of Europe’s small and medium-sized businesses (SMESs) say they face bankruptcy in the next year if revenues do not pick up, highlighting the breadth of damage wrought by the Covid-19 crisis (https://www.bloomberg.com/news/articles/2020-10-22/half-of-europe-s-smaller-businesses-risk-bankruptcy-within-year?cmpid=BBD102220_OEU&utm_medium=email&utm_source=newsletter&utm_term=201022&utm_campaign=openeurope&sref=DzjLIKVJ).

McKinsey’s survey was conducted in August 2020, that is, before the current acceleration in new coronavirus cases across Europe that is forcing governments to impose new restrictions on activity and prompting speculation of fresh national lockdowns (https://cyprus-mail.com/2020/10/22/over-half-europes-small-firms-fear-for-survival-survey/).

It was found, from the survey consisting of more that 2,200 companies in France, Germany, Italy, Spain and Britain, that 55 per cent are expected to shut down by September 2021 if their revenues remained at current levels (https://www.mckinsey.com/industries/public-and-social-sector/our-insights/covid-19-and-european-small-and-medium-size-enterprises-how-they-are-weathering-the-storm).

Moreover, it was reported that if the situation were to worsen and revenues decreased by a further 10 to 30 per cent, 77 percent of SMEs said they may be out of business by September 2021. Also, if the situation were to improve and revenues increased by 10 to 30 percent, 39 per cent of SMEs said they may nevertheless be out of business by September 2021.

Such businesses are key to the region, accounting for more than two-thirds of the workforce and more than half of the economic value-added. It should be pointed out that small and medium-sized enterprises (SMEs) are defined as those with 250 or fewer employees.

The survey reflected that at the current trajectory, one in 10 small and medium-sized companies were expected to file bankruptcy within six months (https://www.hellenicshippingnews.com/over-half-europes-small-firms-fear-for-survival-survey-finds/).

It is indisputable that the pandemic has hit European firms hard, depicted by the fact that 70% are reporting lower revenues. That level was even higher in Italy and Spain, reflecting the severity of the virus and lockdown measures in those countries (https://www.bloomberg.com/news/articles/2020-10-22/half-of-europe-s-smaller-businesses-risk-bankruptcy-within-year?cmpid=BBD102220_OEU&utm_medium=email&utm_source=newsletter&utm_term=201022&utm_campaign=openeurope&sref=DzjLIKVJ).

It is important to note that economists polled by Reuters in September 2020, forecasted that the euro area economy would grow by just 5.5 per cent next year after a fall of around 8 per cent this year but warned that even that patchy recovery was vulnerable to a further spread of the virus (https://cyprus-mail.com/2020/10/22/over-half-europes-small-firms-fear-for-survival-survey/).

In Europe, the SMEs employ over 90 million people but their small size makes them vulnerable to cash flow crises. This vulnerability is emphasized by the fact that in Spain, 83 per cent of the 85,000 businesses that have collapsed since February employ fewer than five workers.

The IMF, stated in its blog this week that, “Policymakers need to do whatever it takes to contain the pandemic and its economic damage, and not withdraw support prematurely to avoid repeating the mistake of the global financial crisis” (https://content.govdelivery.com/accounts/USIMF/bulletins/2a6fdd2).

Additionally, regarding the measures to facilitate debt restructuring or make equity available to viable firms, IMF added that “For companies, policies now need to go beyond liquidity support and ensure that insolvent but viable firms can remain in business” (https://www.hellenicshippingnews.com/over-half-europes-small-firms-fear-for-survival-survey-finds/).