Worrying Spike in the Number of Bankruptcies
As the coronavirus pandemic moves into its fourth month in the developed world, the number of businesses permanently affected by the lack of customer demand is rising significantly. From the very start of the crisis, some big names filed from bankruptcy – Hertz, the rental car company, just one of them.
Other companies would have done the same if governments did not step in and offered loans or even grants and bailouts. Airlines around the world benefited from state aid. Yet, it is not over – American Airlines announced the other day that over 36,000 jobs are in danger in the United States. As demand does not pick up as expected, the crisis is taking longer, and more companies are expected to file for bankruptcy protection.
Even the Google search activity for bankruptcy soared in 2020 to levels not seen since the 2008-2009 Great Financial Crisis. It tells a lot about the struggles the private businesses are facing these days.
Not Only the Google Searches for Bankruptcies Are Rising
The last victim announced this week – Brooks Brothers – a United States retailer, over two-centuries in the business, cannot cope with the coronavirus shock and filed for Chapter 11 protection.
It is just another victim of the current economic recession – and likely, not the last one. Only in the last three months, seventy-five businesses with more than $50 million in liabilities filed for bankruptcy, making it the second worst quarter in history.
Businesses of all sizes had a hard time since the coronavirus pandemic started. The lockdown affected everyone, regardless of the line of business. Even companies thought to be on the safe side (i.e., online businesses) struggled as consumers hold on to their money due to high uncertainty about the future.
Sure, some businesses expanded dramatically. Online grocery stores or the Silicon Valley tech giants had a tremendously good quarter if we only judge by the rise in their market capitalization. However, an economy is more than a few businesses that are doing well.
In the United States, for example, small businesses are the pillar of the economy. They employ millions of people and, together with the middle-size businesses, make up a big chunk of the gross domestic product (GDP).
These businesses are most in danger. The spectacular rise in the number of bankruptcies comes at a time when the government and central bank offer unprecedented financial support.
What would the number be without it?