Friday 27 May 2022

Bankruptcy rate is beginning to rise as Covid help stops and inflation soars

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The number of companies going bust rose for the second month in a row in March as the government stops its financial support for firms hit by coronavirus, according to new figures from the Dutch chambers of trade.

The KvK reported 160 bankruptcies in March, up 22% on a year ago, and 17% more in February. In January, the bankruptcy rate was still falling, hitting its lowest level in 20 years.

Despite the increase, the figures are still low compared with the pre-coronavirus era, when around 250 companies were going bust every month.

‘We are at the tipping point,’ said Radboud University professor Joris Knoben. ‘Many companies are wrestling with the financial impact of the pandemic. Now energy costs and inflation are soaring. It is no great surprise that the number of bankruptcies is going up.’

The government stopped supporting firms financially at the beginning of April and is also phasing out the deferred tax payment system.

The national statistics office CBS is due to publish its bankruptcy figures on Tuesday.

Central bank

The Dutch central bank said last month that while government support measures were effective in supporting hard-hit industries in the first year of the coronavirus crisis, they also reduced the incentive for businesses to adapt to change.

The support measures, the bank said in a new report, turned out to be very successful, keeping bankruptcy and unemployment rates low, and allowing the economy to rebound quickly during periods without social distancing measures.

But they also cost the government a lot of money. The wage cost subsidies and contributions towards fixed costs required a total of about €40 bn, while the tax office is still owed roughly €20 bn in deferred payments.

In addition, the bank says, there is also the possibility that the support measures have allowed many underperforming businesses to stay afloat, whereas in an economy with ‘normal’ business dynamics, these businesses would have gone bankrupt.

The financial aid package also led the government’s macro-economic advisory unit CPB to warn last year that government support was keeping companies afloat which would have gone bust anyway.

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