Spain’s ‘lost generation’ of companies: ECB says impact of Covid on entrepreneurship will affect employment

ECB President Christine Lagarde.
ECB President Christine Lagarde.

Total paralysis of the economy. It was what months COVID-19 for many Spanish companies. Social incarceration, in addition to various containment measures, has significantly slowed down many businesses and led to the closure of many others. But not only that: the health crisis has had a major impact on entrepreneurship, which significantly increases the number of “unborn” companies. Considering this situation, Art European Central Bank (ECB) warned that the Spanish labor market will be affected by this “empty generation” of new companies in the coming years.

The crisis of COVID-19 This caused a significant loss of income for affected households, and the high level of uncertainty made it difficult for entrepreneurs to obtain bank loans. Despite the swift policy measures taken to support prominent companies affected by the shocksuch as holiday schemes, guaranteed loans or moratoriums, government support for those seeking to set up new businesses was weaker and longer over timeas startups play a key role in job creation, innovation and long-term growth.

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The latest article from the watchdog called The impact of the Covid-19 pandemic and policy support for productivity, that the crisis had a negative impact on our business decisions, primarily all those low income entrepreneurs. In addition, the ECB notes that financial frictions are behind different entrepreneurial behaviours, as demonstrated by the fact that high earners were better equipped to take advantage of the new opportunities created by Covid-19 by launching more digital businesses.

Employment held steady in 2023 despite slower GDP growth, with 535,000 more branches than in 2022 and 196,000 fewer unemployed.

“This ‘lost generation’ of companies could have long-term implications for job growth: the labor market for the group of companies created in 2020 is expected to will be 2.4% lower in 10 years“, – it is noted in the mentioned report. Therefore, the body under the chairmanship of Christine Lagarde recommends that measures to support already established enterprises be accompanied by measures to reduce the cost of loans for potential new entrepreneurs, especially those with low incomes.

In Spain, business creation during Covid-19 fell by 40% compared to the average of previous years, according to estimates before our era. The loss of new companies, which was more concentrated among new companies with high growth potential, as also happened during the economic crisis of 2008. Likewise, the health crisis had a greater impact on all those entrepreneurs with lower income levels, while those who had more capital, kept their plans despite ​​​​​​​​​Covid.

“This business gap is not a direct result of social distancing, as it is mainly driven by sectors not directly affected by confinement measures and is more pronounced among households not affected by shock negative returns during a pandemic. An increase in the number of entrepreneurs due to necessity can also be ruled out as a source of these differences in entrepreneurship between low- and high-income families,” according to the aforementioned article.

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Financing, according to v before our era, which explains this gap in business during the health crisis. In particular, banking supervision ensures that low- and middle-income startups have significantly increased the use of their own savings – compared to other sources -, an increase in self-financing that is not seen in the case of entrepreneurs. .

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