Approximately 33% of companies in the Euro Zone have accumulated losses beyond their cash reserves, as a result of the Covid-19 pandemic, the European Commission reported.
In general, the crisis had a severe impact on the business sector.
Companies operating in the sectors most affected by the pandemic suffered the greatest financial pressures.
Until now, companies have relied heavily on their cash reserve to weather the crisis.
However, due to the large drop in revenues, it is estimated that around a third of all companies in the euro area have accumulated losses beyond their cash reserves and, in the absence of additional external sources of financing, will be they would find themselves in a state of illiquidity.
Share of euro-area firms in financial distress
The aggregate data conceals considerable heterogeneity across sectors, and the incidence of financial distress mimics the impact on turnover presented above.
According to the European Commission, the substantial reduction in turnover in the manufacture of transport equipment translates into considerable financial difficulties for car producers, and it is estimated that more than 60% will experience liquidity problems during the first wave.
On the other hand, manufacturers of digital goods (computers and electronics) managed to keep losses within limits, and only a fifth of producers required additional external financing to cover losses.
Largest changes in announcements of restructuring events (Index, 2017 = 100)
Thus, the prospects for a reduction in pressure on euro area companies vary from sector to sector.
The simulations show that accommodation and food service companies are likely to continue to experience liquidity problems throughout 2021 due to weak demand and remaining constraints.
On the contrary, while the proportion of companies in difficulty in the transport equipment sector was similar during the first wave at around 60%, automobile producers have benefited from the release of pent-up demand during the second half of 2020, and their financial situation is expected to improve further towards the end of 2021.