The economy is doing badly, but why don’t the numbers show that?

October 21, 2021 by No Comments

The rack is out. It is not only young people who are affected by all the corona restrictions that have often said so in recent weeks. The words now seem to apply to many industries as well. Café owners, shopkeepers, gym owners, sex workers – who didn’t threaten a revolt against The Hague this week?

It started with the hospitality industry. Trade association KHN announced on Monday that it wanted to force the opening of cafes and restaurants through a substantive procedure, due to lack of perspective. But the summons for it had not yet been issued, when some of the catering operators decided on Thursday that enough had been enough. At least 65 local KHN departments called on catering operators to open the terraces next Tuesday.

One sector after another then overflowed with actions to achieve relaxation through pressure on the cabinet. The gyms want to give a public sports lesson on Saturday as a protest. Hundreds of clubs say they are participating.

On Tuesday, the sex workers will draw attention to their situation with a ‘peep show on wheels’. As the only contact profession, they are not allowed to get started from next week. And then there’s retail. The INretail industry association wants to force the reopening of the stores through the courts, it said on Friday. “It is economically irresponsible to wait any longer. The stores are also open again abroad,” INretail said in a press release. Shopkeepers in Klazienaveen in Drenthe do not want to wait for the lawsuit and say they will open their doors fully again on Tuesday.

Catering and retail want to legally enforce relaxation

Also big chains murmur. The advertised ‘shopping by appointment’ is not of much use to them. Furniture store IKEA, for example, has already announced that it will not participate; opening for a few customers per hour is not profitable.

Despair due to the ongoing restrictions is palpable among many entrepreneurs. They scream for perspective, because the end of their company is imminent.

However, the need is by no means clear in all figures. Yes, sales for non-food retail businesses fell more than a third in February from a year ago. Statistics Netherlands reported this on Friday.

But the same CBS last year also only counted 2,703 corporate bankruptcies, historically few. According to the economic bureau of ING, the percentage of business terminations, where the entrepreneur chooses to stop, was approximately the same as in 2019. And real estate researcher Locatus saw the number of vacant retail properties hardly increase. The number of unused square meters of retail space even fell.

Who’s right? Do the numbers tell a very different story than the angry entrepreneurs? Not quite, say several economists. The current crisis is a trap slow motion, which takes place under atypical conditions. How many businesses will stumble depends on many factors.

Less income, less costs

First of all, it is important to distinguish between two important figures that say something about the health of a company: liquidity and solvency. Liquidity indicates how much money is present in a company at any given time. A company that is sufficiently liquid can now pay its bills. Solvency indicates the extent to which a company can meet its obligations in the long term, such as paying back a loan.

When a business closes from one moment to the next, the income suddenly disappears. But the bills keep coming. If someone cannot pay it in the short term, a business is in danger of falling over. After all, an entrepreneur has staff, often pays rent and has credit with the bank.

To prevent the entrepreneur from going down quickly, the government has created all kinds of support measures. From the wage cost subsidy (NOW) to the allowance for fixed costs (TVL). Many entrepreneurs have been able to survive in this way, often in combination with other measures: temporary workers and flexible staff were thanked for their services, banks granted a postponement of payment. The tax authorities also granted a postponement of payment. As a result, up to now 17 billion euros in tax liabilities have been pushed forward.

This is how many entrepreneurs have managed to keep their heads above water. “Companies have been able to compensate for what was lost in income by reducing costs to almost the same extent,” says Jan-Paul van de Kerke, economist at ABN Amro.

However, according to him, not everyone manages to find that balance. And then it starts twisting. “The entrepreneurs you hear now are the parties where the real problems are.”

This is partly because the support packages are not sufficient for all companies. They don’t cover 100 percent of the costs anyway; entrepreneurs have therefore also started to put extra money into the business: savings, their pension pot. And then you touch on a company’s ability to survive in the long run.

According to industry association KHN, operators in the catering industry have now invested 5 billion euros in extra money in their business. Director Dirk Beljaarts: „And that is now really running out. While suppliers who were initially lenient with deferral, now really want their bills to be paid once.”

Many anxious entrepreneurs are at that point. They have little income, there is still money to be added, and there is an ever-increasing mountain of debt. Deferral of payment is not an adjustment. The stack of bills must be paid in due course. Where banks granted generic deferral of payment in the first months of the crisis, they have now switched to customization. There is no longer any question of automatic postponement of the repayment obligation.

Taxes will also have to be paid at some point, State Secretary Hans Vijlbrief (Finance, D66) emphasized on Thursday. Waiver is not an option. That would be unfair to entrepreneurs who “have been crooked” in order to pay their debts, Vijlbrief emphasized at radio station BNR. “Besides, the money is yours and mine.”

At the same time, the State Secretary also did not want entrepreneurs “to get out of the crisis with a bucket behind their boat”. So Vijlbrief is looking at whether entrepreneurs may spread payment over a longer period. Then the burden will be a bit more bearable once the economy gets going again.

Differences within sectors

It is clear that the current low bankruptcy figures do not say everything about the state of the economy. Nor do they show that the crisis is hitting some companies and sectors much harder than others. Take – again – the hospitality industry. Whoever owns a restaurant may be able to limit the loss of turnover through takeaway meals, but pubs hardly have such an alternative.

“There are now restaurants that run better on some evenings than before, because they can use the full capacity of their kitchen,” says ING chief economist Marieke Blom. “Cafés can only sell a cup of coffee on the go and see a much greater loss of income.” In other words: the absence of a bankruptcy wave does not mean that individual companies are not having a hard time.

Which, according to Blom, also contributes to the low number of bankruptcies: realism ‘in the chain’. “Many property owners have not received their rent in full, but may think: I can’t pick from a bald chicken. Then it makes less sense now to file for the bankruptcy of a company.”

In addition, there is a widely applied court decision, which stipulates that tenants and landlords must share the pain fairly. Blom: “Landlords have no use for playing the bogeyman now. They prefer to wait and see whether the customer can pay after corona. That leads to reticence.”

This still does not rule out bankruptcy for many companies. Because it may be a slow-motion fall, but the signs are there. ABN Amro economist Van de Kerke: “In crises you always see a delayed reaction of bankruptcies to developments in the gross domestic product. We also expect the number of bankruptcies to rise.”

ABN and ING expect the number of bankruptcies to increase in the near future

ING also expects that more companies will run into problems or stop when the economy starts up again. How much is uncertain. Chief economist Blom: “We don’t actually know how many companies are really up to scratch.” She points to the new Private Agreement Homologation Act (WHOA), which would make debt restructuring easier. “That could save bankruptcies.”

For some of the companies, the reopening alone could be difficult. Blom: “Costs often outweigh the benefits. If a supplier wants you to pay a bill in advance and you have no reserves left, it can be done quickly.”

The cabinet emphasized again on Friday that it understands the concerns of entrepreneurs, but that it is not up to companies to determine the rules themselves. Anyone who opens the terrace on Tuesday risks a fine. “Disappointing”, according to Beljaarts of the KHN trade association. “We do not want to call for disobedience but we no longer have control over the entrepreneurs.”