Think tank

Bankruptcies down but pandemic could still bite

 Bankruptcies and judicial liquidations declined in the month of July according to the latest report by Idea Foundation. (Photo: Romain Gamba/Maison Moderne)

 Bankruptcies and judicial liquidations declined in the month of July according to the latest report by Idea Foundation. (Photo: Romain Gamba/Maison Moderne)

July saw 20% fewer bankruptcies and even a 28% drop in judicial liquidations compared to the month before but a local think tank warns it will be critical to monitor this indicator of the economy in the coming months.

The wave of bankruptcies feared in the wake of the pandemic, for the time being, does not seem to be breaking over the Luxembourg economy, confirms the Fondation Idea in its latest "Economic and Social Scoreboard", published on Thursday.

Bankruptcies fell by 20% between June and July this year, to 108 cases, while the number of judicial liquidations fell by 28%, to 70 cases (compared to 98 cases in June). Nevertheless, the Chamber of Commerce think tank emphasises the need for caution noting that "with the gradual end of certain aid schemes in a context of economic recovery, it will be important to monitor this indicator in the coming months.”

Holding companies and investment funds seem particularly affected by the phenomenon, as well as trade, construction and specialised, scientific, technical, administrative and support activities.

Looking at the first six months of this year compared to the average for the same period in 2018 and 2019, the number of court-ordered liquidations jumped 80%. For bankruptcies, the increase was at 8% (647 in the first half of 2021 compared to the average 599 for the first half of the two years prior to the pandemic).

"It is still too early to draw conclusions and speculate on a reason for the phenomenon," comments Thomas Valici, economist at Fondation Idea. While covid-19 has obviously been a thorn in the side of many companies, some were already caught up in other difficulties or were hurt by the end of state aid measures.

Less labour available 

The lack of manpower is cited as one of the main bottlenecks  affecting the activities of 15% of industrial companies, according to the organisation. In the construction sector, half of the companies say they are affected.

However, the employment market is showing good momentum, with 1,855 additional jobs created in June (+0.4%), a stable unemployment rate of 5.7%, and 10% more vacancies available at jobs agency Adem.

Applications for short-time work decreased once again for the month of August, with 1,424 applications approved--19% less than in July. In total, 13,201 full-time workers were affected by the measure--23% less than in June. 

Luxembourg issued short-time working financial aid to 140 employers whose operations were impacted by the flooding on 14 and 15 July.

This article was originally published in Paperjam. It has been translated and edited for Delano.