Inflation destroys more companies than the pandemic in Tarragona
The cost of living already impacts the destruction of companies. And judging by some statistics, it does so in a more forceful way than during the toughest economic times of Covid. From January to August, Tarragona accumulated the dissolution of 293 commercial companies, 18% more than in the same period of 2021 (there were 248) and 56% more than 2020 (187), according to INE statistics.
Destruction speed is higher than in the two darkest years of the Covid-19, marked, yes, by the containment of instruments such as the ERTE. In fact, it is the largest number of closures in the last nine years in the province. We have to go back to 2013a course in which the Great Financial Crisis was raging, to see a higher number: 329. “Inflation is always accompanied by a decrease in business creation and an increase in destruction. The higher the inflation and the longer it lasts over time, the more dissolutions there will be.», indicates Antoni Cunyat, associate professor of Economics and Business studies at the UOC. "We are chaining one crisis after another," the expert alludes.
The circumstance may arise that a company that closes now also does so not only because of the runaway CPI but also because of the accumulated effects of the impact of the coronavirus in the last two and a half years.
This very negative situation is also reflected in the creation of companies. From January to August, 905 companies have been incorporated in Tarragona, 3.5% less than in 2021. Of course, in 2020, the outbreak of the pandemic, with strict home confinement included, the figure was much lower, 640, due to the general lockdown of the entire economy.
For Cunyat, the dynamic is logical in a context of soaring prices: “Inflation is a disruption for businessmen, first because it implies that production costs increase. Then you have to increase the price of your products. A distortion occurs, because it can involve losses. Managers have to be more dynamic and savvycontrol prices practically every day. The companies that adapt less will be the ones that will have the worst time and the ones that may end up closing. Nor does what is happening with access to money help to open a company. «We are in prospects of increases in interest rates that also affect. You need higher expected returns to get the loan and to make the investment», says Brother-in-law.
More insolvency proceedings
Another thermometer of the burdens of the company are the insolvency proceedingsthat reflect the final outcome of an insolvency situation. In 2021, already with inflation on the rise, there were 398 bankruptcy proceedings in Tarragona, the highest number in the entire historical series, which starts in 2007, according to the balances of the statistic Effect of the Crisis in the judicial bodies of the General Council of the Judicial Power (CGPJ).
In 2022, that rhythm is followed: 198 contests in the first semester. It is somewhat less than in the same period of 2021 (221), but it is a figure that far exceeds that of a standard year. In 2019 there were 138, in 2018 86 were registered and in 2011 only 53. It must be borne in mind that on June 30 the bankruptcy moratorium ended after more than two years and that could also have an impact on the following data as they become known .
"Inflation is always accompanied by an increase in the destruction of the business fabric," says Antoni Cunyat, professor of Economics and Business at the UOC
«I have already three precontests and many monitoring processes, of small amounts, which may be an initial indicator that the situation is going to get more complicated, ”explains the Tarragona lawyer Antoni Mendía. The order for payment procedure is used to demand the payment of liquid debts, generally quickly and agilely. The data from the courts are also eloquent in this regard. In the first two quarters of 2022 there have been 9,917 payment orders in the province, 51% more than last year (6,544). It is the highest figure of the decade and is similar to that of 2010 and 2011, when the previous crisis hit.
Cunyat alludes to a “good news”, that of the latest inflation data, which has experienced a slight decline: “If we manage to maintain the trend, inflation would be first level, caused by energy prices. The problem is that if it is transferred to wages, we enter a spiral. In any case, lowering inflation would be a costly and time-consuming process. It is something for example it looks a lot with fuel. Companies tend to raise prices very quickly but the drop is always much slower.
The latest report on the economic situation of Camp de Tarragona and Terres de l'Ebre published by the URV reflected the good performance of some indicators, sustained by the exceptional tourist season, but also warned of the impact of inflation. The balance of the second quarter indicated that the economic level of 2019 will not be reached until the end of 2023.
The study also highlights that “the number of business entities in the area decreases” and adds that the decrease is more pronounced in public limited companies, an "indicator that falls continuously to a reduction of 215 companies in four years." The URV report reflects this negative x-ray from the business point of view: «During the first six months of 2022, the number of actions in the creation of companies or in the capital increase decreases by 6.11%».
A drop in investment of 8.63% is also observed. «If we only consider the new companies, the decrease in investment has been 33.7% while in the case of capital increases it has been 6%. The analysis of Rovira i Virgili concludes, “The trend is clearly downward”both in the generation of companies and in the invested capital.
A latest study, in this case by Pimec, also draws great uncertainty: 50% of Tarragona's SMEs are at risk of making losses.