- The Covid-19 could lead to 45,000 additional bankruptcies in 2020, for a total of 95,000, estimates the French Observatory of Economic Conditions (OFCE).
- Without the crisis, these companies would not have been in difficulty. Some of them, although healthy, are caught up in their cash flow or debt problems.
- This has led the institute to plead for additional financial support of 8 billion euros, in order to avoid bankruptcies linked to the Covid-19.
In an exceptional crisis, extraordinary bankruptcies. By the end of 2020, nearly 95,000 companies are likely to disappear in France, estimates this Friday in a study the French Observatory of Economic Conditions (OFCE). According to the “central” scenario of the economic observatory, if nothing is done, there is a risk of 40,000 failures this year in addition to the 55,000 observed between 1990 and 2016 on average by the Banque de France. This would concern 3.2% of businesses, 1.4 percentage points more than normal. That's a lot, especially if you count the 250,000 jobs threatened in the process.
And in these businesses exposed to default, we are far from counting only lame ducks. The crisis also affects "productive" companies in serious difficulties, underlines the OFCE. The observatory attached to Sciences Po has operated simulations on a file of one million companies, in order to assess the impacts of Covid-19 on their accounts.
Cash problems for hotels and restaurants and construction
Even if the partial activity made it possible to greatly limit the breakage, the lack of cash continues to be a problem for companies. The hotel and restaurant industry is the first victim. In this sector, 42% of companies have liquidity problems, that is to say they cannot manage to meet their payment deadlines while activity, at the lowest, deprives them of income silver. Followed by household service companies (26%) and construction (almost 10% of companies concerned), where the shock caused them to experience the same difficulties.
Without the crisis, some of these companies would not have experienced such problems. The OFCE establishes that in the hotel and catering sector, the share of insolvent but productive companies is multiplied by 11 with the Covid. Ditto in construction.
Financial health, key to survival
Thus, the risk of bankruptcy of "good shoots" exists, "not because they are inefficient, but because they have too few reserves," said Lionel Nesta, economist at OFCE. And beyond the sectors, which have experienced the crisis differently and are unequally affected by the economic crisis, "there are determinants specific to the company and its financial health, which play a central role in its survival". In other words: any company can experience difficulties given the collapse of the economy since March, as long as its financial health is fragile, in terms of available cash or debt.
And, surprisingly, large companies would seem as weak as small ones. 13% of them are faced with liquidity problems, compared to 11% for micro-enterprises and 7% for SMEs. "Small companies can enter into distress because of the scarcity of liquidities, whereas the big ones would be because of too much indebtedness", explains the OFCE. And this, despite the higher productivity of large companies, because of the economies of scale they achieve.
Holes in the racket
These findings lead the OFCE to recommend new support measures for companies to stem the wave of bankruptcies which it anticipates in the absence of new aid. This could happen as soon as school starts. Because the sectoral plans which have been announced recently, dedicated to aeronautics, the automobile, tourism or even culture, will not be enough. "There is a set of fabrics outside the sectors that should be helped," explains Xavier Ragot, president of the OFCE.
And what about elsewhere? The comparison with Germany shows a difference in approach. On the other side of the Rhine, companies having lost 60% of their activity were offered the payment of 70% of their fixed costs within a limit of 150,000 euros. If the approach is good according to the OFCE, the institute also recognizes that it is expensive (25 billion euros) and does not exclude windfall effects. Conversely, Italian support, which consisted of tax breaks or moratoriums on interest charges, seemed too meager and not likely to restore the solvency of companies.
€ 8 billion in equity
In order to save on these expenses, the challenge for the government would then be to identify the really viable businesses. Not easy. Otherwise, the OFCE offers to finance companies that are no longer solvent on demand. They would then justify their need for equity and show a white leg on their past management.
According to the observatory, there should be an additional expenditure of 8 billion euros in equity. While the government's recovery plan is expected for the start of the school year, the bill to stem the crisis continues to increase.
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- Economy
- Bankruptcy
- Economic crisis
- Debt
- Company