Significant questions remain concerning the ability of these small companies to overcome the economic crisis, particularly once government support comes to an end. SMEs are the most vulnerable to the current situation, given their weakest cash positions. Small firms often also face more difficulties to benefit from the existing support schemes. In Italy, only one-third of claims from SMEs or employees on short-time working have resulted in a payment so far . Moreover, Italy and Spain are the two countries where the economic contraction could be the greatest in the second quarter of 2020, which would further accentuate the financial difficulties of small companies in these countries.
Forced savings: a guarantee of recovery in consumption?
The resumption of consumer spending will play a key role in the recovery. First and foremost, consumer spending is the most important part of GDP (slightly over 50% for Germany and France, 60% for Italy and Spain). It is also the demand component most likely to recover fast, in particular because of the substantial savings accumulated during the lockdown period. These “forced” savings are the automatic result of a collapse in household consumption, whilst disposable income has been broadly preserved. The European Commission’s spring forecasts evaluate the scale of this forced savings . The Commission expects the household savings rate to rise in 2020 by between 6 and 7 points in Germany, France, Italy, and Spain. This would push the households’ savings rates to 25% in Germany, 22% in France, 17% in Italy and 14% in Spain. It must be added that the EC forecasts include not only forced savings but also precautionary savings.
The question is at what speed and to what extent this forced savings will be unblocked and consumed once the lockdown ends and the economy starts recovering. On one hand, consumers’ purchasing power is likely to benefit from falling oil prices. It was of little help during the lockdown but it represents a significant support for the post-crisis period. However, what matters eventually the most is consumer confidence with regards to both the health risk and the state of the labour market. The scale of the shock on income and on financial wealth will also play a role. For some, the question will not be to what extent they can run down their savings, but how to rebuild them.
The state of the labour market is a key factor as it will determine to what extent households increase their precautionary savings, thereby limiting the expected recovery in consumption. The persistence of the shock on employment and unemployment is hard to assess, but the risk is not negligible. Given the situation before the crisis, the strengths and weaknesses of the labour markets in each country and the measures taken to mitigate the shock, Germany appears less exposed than France, Spain, or Italy. Although the better situation of its labour market plays favourably (assuming it passes the test of the current crisis), the recovery in German consumption could be restrained by the cautiousness of its citizens, compared to French, Italians and Spanish counterparts.
Uncertainty over the shape of the recovery in consumer spending also relates i) to the composition of consumption, ii) the share of spending that has been unaffected by the lockdown (pre-committed spending and food in particular). Among the part that has been affected, we need to differentiate the part that can quickly be caught up, from the part which will take longer to recover, and even the one that has been definitively cancelled. Unfortunately, it is difficult to make any assumptions about future consumption behaviour. Some of the spending affected falls into different categories, such as travel, vehicle purchase or spending on clothes. Some areas could also see a rush effect after the lockdown, producing thus a temporary surge in consumption: this could be true of bars and restaurants, cinemas, and leisure activities in general.