This is how COVID-19 is affecting Europe’s SMEs

November 3th, 2020 – Small and medium-size enterprises (SMEs) have been the lifeblood of the European economy, accounting for more than two-thirds of the workforce and more than half of the economic value added.1 Yet the results of a recent McKinsey survey, conducted in August, 2020, of more than 2,200 SMEs in five European countries—France, Germany, Italy, Spain and the United Kingdom—indicate just how hard their prosperity has been hit by the COVID-19 crisis.

Some 70 percent said their revenues had declined as a result of the pandemic, with severe knock-on effects. One in five was concerned they might default on loans and have to lay off employees, while 28 percent feared they would have to cancel growth projects. In aggregate, more than half felt their businesses may not survive longer than 12 months—despite the fact that 20 percent of those surveyed had already taken advantage of the various forms of government assistance aimed at easing their financial distress, such as tax breaks or payments to furlough staff.

The vast majority of SMEs surveyed have seen revenues fall; although, as one might expect, the picture differs by country, reflecting the severity of measures to control the virus and their impact on business activity. Italian and Spanish SMEs have been hardest hit: 30 percent and 33 percent, respectively, said their revenues had been greatly reduced. That compares with 23 percent in Germany.

Few SMEs appear optimistic about the prospects for improvement anytime soon given their views on the state of the economy. Overall, 80 percent weighed the economy as somewhat weak to extremely weak. But here, too, we see material country variations. In Germany, where the economy is forecast to contract less than elsewhere, 39 percent of SMEs weighed the economy as somewhat strong to extremely strong. By comparison, in Italy the figure was just 10 percent.

There were also differences across countries on the extent to which the pandemic is impacting SME financial positions, challenging the ability to retain staff or pay loans and leases. For example, Spanish SMEs are consistently among the more pessimistic. Thirty percent of Spanish SMEs were concerned about being able to pay back loans, compared with 14 percent in Germany. Similarly, 38 percent of Spanish SMEs feared they might not be able to retain their employees—a figure that drops to only 16 percent in Germany and France. Noteworthy, too, is that on average across Europe, 14 percent of SMEs said they were struggling to staff their operations due in part to so many people being on sick leave or having to quarantine.

More…https://www.weforum.org/agenda/2020/11/covid-19-coronavirus-pandemic-europe-business-smes-economics/

Written by World Economic Forum