Heterogeneous firm-level impact of Covid-19 and recovery expectations.

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The Covid-19 pandemic and the imposed social distancing restrictions represented an unprecedented shock for the world economy and caused a marked increase in uncertainty. Based on a new firm-level survey matched with balance-sheet information, this column presents new evidence from Spain on the asymmetric impact of the pandemic shock.

The impact of the Covid-19 shock was larger in the case of small and less productive firms within each sector and region. However, the unexpected announcement of the effectiveness of the Pfizer vaccine significantly improved the prospects of faster recovery under different sets of measures.

While the Covid-19 crisis is unique in many dimensions, two aspects are worth highlighting: first, its heterogeneous impact across sectors, regions, workers, and firms (Puy and Rawdanowicz 2021, Bloom et al. 2021, Crossley et al. 2021); second, the presence of an unprecedented level of uncertainty both on the epidemiological and economic side, which has only started to decrease recently thanks to vaccine developments (Altig et al. 2020, Ahir et al. 2021). An uncertain recovery path generally makes firms more cautious, possibly retarding their investment and hiring decisions.

A better understanding of the consequences of the crisis along these dimensions is key for policymakers. In particular, targeted and predictable policies crucially depend on identifying the type of firms most affected by the shock and understanding how uncertainty shapes their perspectives and decision-making. In Fernández-Cerezo et al. (2021), we exploit the information provided by the new Banco de España Business Activity Survey (EBAE for its abbreviation in Spanish) in order to shed light on these issues. The EBAE survey was launched in November 2020 and 4,004 valid responses were received. It included a set of questions on how far turnover and employment were from pre-crisis levels, the main factors hindering firms’ activity during the pandemic, and their recovery expectations. A unique feature of this survey is that it can be matched to balance sheet data allowing us to investigate the impact of the shock depending on firms’ ex-ante characteristics, such as productivity, size, or age.

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