The recovery from the coronavirus crisis is progressing less aggressively than expected in the spring. More than a year and a half after the start of the pandemic, the Spanish economy is still 5% below its level in March 2020. Spain will be one of the advanced economies with the highest increase in bankruptcies in 2021 compared to 2019 (24%), according to forecasts. Presented on Tuesday by the General Council of Economists (CGE) in the presentation of the report Atlas bankruptcy 2021. These forecasts are conditioned by the weight in the national economy of both small and medium-sized businesses and the productive sectors most sensitive to the restrictions imposed by COVID-19 (tourism and hospitality, among others). The report notes that it will take until the end of 2022 Spain to return to the same conditions it was in before the pandemic.
Major European economies recorded a decrease in the number of defaults in 2020 compared to the previous year, although there are significant differences. Spain stands out among the countries that showed a slight decrease (3%), along with Germany (9%) and Portugal (12%). In contrast, France (36%), Italy (33%) and the United Kingdom (28%) showed a higher decline. CGE analysts point out that these declines are due to the subsidies granted to mitigate the economic effects of COVID-19 and the extension of the bankruptcy moratorium until December 31.
According to the report, the number of bankruptcy proceedings until the third quarter of 2021 increased compared to the same period in 2020 (from 3,131 to 3,169), although it decreased compared to 2019 (3,383). Similarly, the largest increase in the same period occurred in competitions for the self-employed, (1446 in 2021 compared to 398 in 2020 and 326 in 2019). This is more than three times what it was in 2020 and more than four times the data recorded in 2019. In fact, the majority company in Spain in the field of bankruptcy is still SMEs in 2020, which account for more than 53% of Total tenders. In this regard, GGE Chair Valentin Beech stressed the need to resort to restructuring mechanisms for SMEs and the self-employed to prevent them from ending up in liquidation. Additionally, the data reflects a 35% increase in natural person competitions in 2020 compared to 2019, an increase that contrasts with a 3.3% decrease in the number of the company’s competitions between those two years.
Economics professor, Javier Santacruz Cano, sees the business competition scenario as dependent on two issues. In the first place, he withdrew the assistance that had been offered to mitigate the consequences of the complete shutdown of productive activities for several weeks. By withdrawing most of the compensatory measures, we are facing a future outlook of growing bad debts. He pointed out that this crisis destroyed the productive fabric.
Another factor that will affect the development of the number of bids is the rate of recovery of the economy in the coming months. Unlike other European countries, Spain has not yet been able to restore pre-pandemic levels, and it may not be until the end of 2022. Reaction so that the business fabric continues to come alive, and we will see that competitions will continue to grow at a faster rate”, adds Santacruz.
Spain, the country in Europe with the lowest bankruptcy rate
CGE economists have emphasized that if the number of insolvencies and the number of firms are related, Spain is the country in Europe with the lowest percentage. There are only 13 companies out of 10,000 bankruptcies in Spain, which is well below the European average, which is about 52 companies involved in the process for every 10,000.
The bankruptcy reform bill, which aims to facilitate the restructuring of viable companies and improve insolvency proceedings, requires that it be processed for approval before June 2022. Head of the Register of Forensic Economists (REFOR), Juan Carlos Robles, emphasized that the new text offers progress from By strengthening the disclosure of the possibility of bankruptcy and by including a special formula for small and medium companies, where previously the bankruptcy procedure was designed for medium and large companies. However, Robles is of the view that in the regulation there are still aspects that need improvement, such as the excessive weighting of the debtor’s role in small business proceedings and the little importance given to training to be liable for bankruptcy.
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