In March 2020, we had absolutely no idea what would happen. Virtually the whole world went into a lockdown, something most of us had never experienced before. No one knew what the impact would be. Initial implications only really became visible in 2021. And 2021 also became a rollercoaster year with many ups and downs. From a 2e lockdown, to vaccinations, with the hope that it would then all be over soon. But sadly, that turns out not to be the case. How long will Covid-19 continue to hold us hostage?
Retrospective 2021
By the massive state aid most companies have remained afloat, even in the sectors hit hardest. The number of bankruptcies is currently at extremely low levels and companies that are actually not viable are still operating.
A major problem is the shortage of raw materials and semi-finished products resulting in huge delays in production processes. There is also a severe staff shortage that limits our production capacity.
Despite everything our economy is running at full speed. But if we want to keep the engine running, we need to pick up some things quickly. If Covid-19 has taught us íthing, it is that we must less dependent should be from low-wage countries, and especially China. We need to start producing essential products in Europe again. The lowest price no longer seems to be the criterion, but mainly the availability.
In addition, we must continue to invest in our infrastructure. In this way, we can also ensure logistically that materials get to the right place quickly. Supply chain becomes one of the most important critical factors in the production process. So if, as a company, you have organised your supply chain well, you will take a considerable lead over the rest.
Tip: My colleague Fred Soers has written an interesting article on supply chain issues. Click here to read the article.
Currently, there is a huge shortage of staff whereas before Covid-19, we actually saw an increasing number of unemployed people. So in itself, it is strange that relatively many people are out of work and receiving unemployment benefits. Companies urgently need people but cannot find them. Politicians must respond to this quickly. So retraining people is very important, but also encouraging training where there is a need in the market. The need for professionals like, mechanics, painters, plasterers, bricklayers, etc. is increasing. Young people can earn more money in the long run with a skilled trade, than with an administrative job. We will also need to improve labour mobility within the EU.
What will 2022 bring?
Who will say? In 2020, almost every economist predicted an economic crisis. 2021 even leaves see a growth and many companies are running at full speed. It is clear that Covid-19 will continue to affect us even in 2022. We will have to pay back all the state aid once again. Unfortunately, a number of companies will not be able to do so. Gross Domestic Product is forecast to rise by 3.5%. Unemployment will remain low, around 3.5%. The cessation of state aid will reduce the fiscal deficit to 2.3% (5.4% in 2021). Inflation is very high in 2021, even above 5%. Inflation is expected to decline to 2% in 2022.
Companies should take into account that from now on no or limited government support get. Fortunately, most companies in the Netherlands can stand on their own two feet just fine. A large proportion of companies that cannot will eventually become unviable. That means we will definitely return to a normal number of bankruptcies. This means that we are going to see an increase compared to recent years when the number of bankruptcies was extremely low.
Due to high prices and economic activity, the outstanding balances on debtors increase sharply. This will put pressure on working capital and increase debtor risks.
Final word
With the climate with both working capital financiers and credit insurers positive, it makes sense to take action right now. Both conditions and rates are favourable and that could change if the economic climate looks different after all. Feel free to talk to Xolv's advisers about the possibilities for your business without any obligation.
Paul van Uden
Managing director Xolv
