The social confinement measures decided in response to the COVID-19 pandemic crisis implied in the short term a strong and abrupt reduction in corporate activity. Many companies interrupted or significantly reduced their activity, which resulted in a significant reduction in revenues. An analysis with microeconomic data on companies' liquidity reserves and their ability to generate cash flows in a situation of strong slowdown in activity suggests the existence of marked heterogeneity. In view of the observed declines in activity in the various sectors of the economy, around 40% of companies should continue to be able to generate a liquidity surplus. In contrast, for 16.6% of companies, liquidity reserves should not be sufficient to pay their fixed costs within a period of 40 working days of activity contraction. When considering the impact of the simplified layoff measure introduced by the Government, this percentage drops to 11.7%, a figure slightly above what would be expected if the pandemic had not occurred.

The figures presented mainly reflect the universe of micro firms, in which there is always a higher percentage of companies with a liquidity shortage and the increase is smaller. In the remaining cases, the increase in the fraction of companies with a liquidity shortage ranges from 9 pp (small companies) to 17 pp (large companies). In these cases, the simplified layoff measure has a very significant impact, but does not completely neutralize the impact of the shock. The results obtained also suggest a strong heterogeneity in terms of the activity sector, with the accommodation and food service activities standing out from the rest, with around 31% of companies with a liquidity shortage.

For more details see the Special Issue: “The economic impact of the pandemic crisis”, published in the Economic Bulletin of Banco de Portugal, May 2020.

Prepared by Nuno Silva, António Santos and Luísa Farinha. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.

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