Covid, corporate problems are not over yet

The specter of inflation haunts Europe. With this expression, many analysts identified the current situation, which is the rise in prices of raw materials (above all, energy) and the consequent decrease in the purchasing power of households. The scenario that the International Monetary Fund (IMF) also agrees with, and which is mentioned in the Global Financial Stability Report of October, the document in which the institution assesses the main vulnerabilities of the global financial system, wrote that “the optimism that drove markets at the start of the year has been eroded by growing concerns about the strength of the recovery,” then added that “continued disruptions in the supply chain have intensified concerns about inflation.” .

The report states that credit conditions have improved in the corporate sector in terms of cost and access, but remain uneven across sectors and countries. At Sky TG24 Business, Fabio NatalucciDeputy Director of the Monetary and Capital Markets Department at the International Monetary Fund, Explain how “profitability has gone up, particularly in the US, but also in Europe. We have seen a decrease in bankruptcies, even if the picture is different: in the US, these have gone down for large and small businesses, in Europe for small and medium-sized businesses they continues to grow.”

Solvency risks are also of concern. “Here too” – continues the expert – “there are differences between sectors, such as those most affected by the epidemic, for example transport, services and consumption, and based on the size of companies: similar risks are clearly higher for smaller companies.” Here, the greatest fear relates to the gradual removal of economic aid to businesses which, as Natalucci points out, “must be done in such a way that there is no reduction in credit available to businesses”.

So, in light of the storm, especially small and medium-sized enterprises, which the IMF considers “particularly vulnerable, since they depend mainly on bank loans (which can be cut in case the outlook deteriorates) and more on both direct tax support companies and from specific forms of support. Therefore, the report continues, “Strong M&A activity this year should support consolidation among small and medium-sized businesses.”

On the other hand, the crisis has also prompted mergers and acquisitions, as can be seen from the graph, due to the need to reorganize and reduce corporate costs through mergers. In short, those who could afford it probably made excellent deals.

Although monetary and fiscal policy support is still necessary to facilitate a continued economic recovery, the report states that this “must be more targeted and adaptive to the country’s conditions, given the mixed pace of recovery. Central banks should provide clear indications about the” future direction of monetary policy To avoid an unjustified tightening of financial conditions.

On the episode of SkyTG24 Business on October 13 (Check it here), and also a space for financial education with Annamaria Lusardi, an economist at George Washington University and director Edfin’s CommitteeEuropean strategies to combat rising energy prices with Antonio CesaranoChief Global Strategist at Intermonte Sim.