One in seven Spanish workers is in companies at risk of collapse, with the exception of those who work for financial companies, according to new research by the European Central Bank.
This is the highest rate of any major euro area economy, and comes despite the country’s national vacation program.
It’s comparable to about 8 percent of the workforce in Germany and France and 10 percent in Italy, which also takes into account the use of subsidies to keep people in work, the ECB found.
Companies at risk of collapse have negative working capital and high levels of debt.
The prospect of further job losses is particularly worrying for Spain as it already has one of the highest unemployment rates in the euro area at 16.5 percent.
“Spain is the hardest hit country [in the eurozone]Around 25 percent of the population of companies with employees is at risk of becoming illiquid at the height of the crisis. . . do not require political support, ”said the ECB.
Spain’s dependence on tourism and the higher number of coronavirus infections later this year have put a greater strain on the economy.
Even after recovering 16.7 percent quarterly in the three months to September, production was still 9.1 percent below pre-pandemic levels – a larger deficit than most of the eurozone countries.
The economic damage has been exacerbated by the nature of the Spanish labor market, where around a quarter of all workers are temporary, and the proliferation of small businesses that often lack the resources to withstand a severe downturn.
“The large potential economic cost of an increase in company departures as a result of the Covid-19 shock justifies the major support programs implemented by all European governments,” said the ECB. “However, if these systems are withdrawn before corporate revenues recover from operations, we can see some cliff effects.”
The investigation found that separate data showed that French unemployment rose sharply in the third quarter as hundreds of thousands of people previously considered to be inactive began looking for work again when the first national lockdown was lifted.
The reclassification of 801,000 people from inactive to unemployed resulted in the French unemployment rate rising from 7.1 percent in the second quarter to 9 percent in the third quarter. This was the biggest increase since it began recording in 1975, according to the National Statistics Institute.
Unemployment across the euro zone rose from 7.2 percent in March to 8.3 percent in September. The ECB said labor markets had so far been largely shielded by government vacation programs, but warned that the longer the pandemic went on, the more likely the longer the pandemic would rise, the more likely it would be.
“Whether the current crisis will leave long-term scars depends, among other things, on the number and type of companies that default due to the liquidity burdens caused by the lockdown and containment measures,” the report said.
In much of Europe, corporate insolvencies have not yet increased significantly and in some countries such as Germany have even decreased.
In Spain, figures released last week showed that insolvency filings by individuals and companies rose 1.6 percent year over year in the third quarter. However, in the first nine months of this year they were still a fifth lower than in the same period last year.
The ECB estimated that the economic scars caused by the impact of the pandemic on labor markets, productivity and investment would lower potential production in the euro area by nearly 3 percent by the end of 2022 than last year.
On the positive side, following a possible breakthrough of the Covid-19 vaccine, the ECB triggered a global equity rally on Monday and hopes that the “long-term damage to the economy may be rather small. . . if a vaccine is found to ensure the shock does not last or recur ”.