How many businesses will the virus take down? Court figures suggest that this autumn bankruptcies were at a similar level to previous years. So any lasting damage may only become apparent late in 2021 as we seek to get back to normal after state support programme are scaled back.
Growth forecasts were revised down by the national statistics office Statec in late October, with a contraction this year of -7.5% set to be followed by 5.5% growth in 2021. Thus it won’t be until 2022 that the economy will return to its pre-covid size. But behind these impersonal numbers lies fate of many entrepreneurs and our favourite local shops, restaurants and bars that they run.
If past experience is a guide, the government is likely to be relatively generous with state support, and this for a considerable time. After the 2008 global financial crisis short-time working salary subsidies not only kept many businesses afloat during the hight of the turbulence, but many which could prove temporary market impediments continued to be supported. For example, in February 2020, before the virus struck the country in earnest, 27 firms successfully applied for this backing for 2,227 staff.
“The support offered to companies in Luxembourg is much better than in Germany in terms of the speed with which they gave liquidity,” said Herbert Eberhard, CEO of the credit protection organisation Creditreform. He said this process took a couple of weeks in the grand duchy, compared to months on the other side of the Moselle. Thus, if the government remains attentive to business needs, there should be a way of helping long-term viable businesses get over the hump.
Yet the question remains to what extent the crisis will lead to a structural change in the market. Already before the virus we were shopping more frequently online, and it is probable that this experience will affect many people’s habits on a permanent basis. Similarly, if working from home becomes integral to our lives, this will affect retail footfall and demand for restaurant meals at lunchtime. The more popular players will survive the setback, but at the margins there is likely to be damage.
Herbert Eberhard, CEO of Creditreform in Luxembourg. Eberhard spoke with Delano for the magazine’s “2021 forecast” series. Photo credit: Creditreform
Eberhard points to considerable potential harm to what he refers to as “zombie firms”: businesses with weak sales, but kept going by their ability to borrow at low interest rates. “We see considerable numbers of firms who have losses equivalent to more than three years of their balance sheet, and they only survive through cheap loans.”
Christmas often generates a quarter of sales, and this is likely to be ruined. But much depends on how the virus and the vaccines play out in the months to come. Eberhard said: “For me, it’s a huge fat ‘nobody knows’.”
A version of this article was originally published in Delano’s January 2021 edition. Be the first to read the magazine by subscribing for home or office delivery here.