Has business capacity boomed?

Posted by: Paul Donovan

23 Apr 2021

Weekly Updates

  • This is not a normal recession-recovery cycle. There are more businesses in the world’s major economies today than there were a year ago. This unique situation makes it useless to try to fit the economic bounce back into a traditional recession-recovery model.
  • The business world has had two very unusual features over the last year. First, business failure rates in advanced economies tended to fall. In fact, liquidation rates and bankruptcies reached record lows in countries like the UK and Germany. This is because of direct government support (furlough schemes, grants, and lending) and low interest rates.
  • Second, there has been an explosion of business start-ups in most major economies. The astonishing growth in business creation began around August 2020 and has more than offset the slowing of business creation during lockdowns. Start-ups have mainly been in retail, transport and hospitality, and seem to be individuals taking advantage of free time and technology to set up small businesses.
  • Some of the businesses that have survived will be “zombie” companies—businesses that would have gone bust were it not for government help. They cannot survive for ever. But overall the world economy is bouncing back with more business capacity and more business competition than any previous economic recovery has had.

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