ifo Economists Panel: Coronavirus Crisis Increases the Number of Zombie Companies in Germany
German economists fear that in the coronavirus crisis, the number of zombie companies will “tend to increase.” Of the economists surveyed by the ifo Institute, 66 percent share this concern. This is a key finding of the Economists Panel jointly put together by the ifo Institute and Frankfurter Allgemeine Zeitung. “Some of the state’s aid measures unfortunately have undesirable side effects,” says Niklas Potrafke, Director of the ifo Center for Public Finance and Political Economy. “They serve to artificially prolong the life of companies that lack a convincing business model.”
Fully 86 percent of those surveyed see a risk of zombie companies as a result of waiving the obligation to file for bankruptcy in the event of insolvency. However, since October 1 this special rule has ceased to apply. According to 50 percent of those surveyed, the short-time work allowance is another measure that supports zombie companies. This is also the risk that 32 percent perceive with state loans to companies via the Kreditanstalt für Wiederaufbau (KfW).
Of those surveyed, 64 percent expect that the number of bankruptcies will “tend to rise” when state economic aid comes to an end. A further 32 percent even expect a “sharp rise” in the number of insolvencies. The Freiburg economist Oliver Landmann added that it would be premature to stop the aid now, but that a slow, predictable tapering would send an effective signal.
The survey involved 120 German economists.
Survey
An Undesirable Side Effect of Coronavirus Measures: Zombies?
The German government has adopted far-reaching economic policy measures to mitigate the consequences of the coronavirus crisis. These appear to be working: in the second quarter of 2020, there were 8.86 percent fewer corporate insolvencies than in the same period last year despite the crisis (German Federal Statistical Office, 2020).
