FRANKFURT: The European Central Bank (ECB) says risks to the stability of companies, banks and financial markets remain “elevated” due to the uneven impact of the pandemic on the economy, warning that the eventual removal of relief measures could lead to a surge in bankruptcies.
The ECB warned of “a clustering of risks in some sectors and countries,” with companies in the services sector hardest hit by the pandemic having taken on more debt, leaving them vulnerable to prolonged economic weakness.
“An increase in corporate insolvencies may impact households via employment prospects, so far prevented by policy support measures,” the central bank said in its twice-yearly financial stability review issued on Wednesday.
The central bank said government relief policies should continue to support the recovery. But bank officials urged governments to move toward more targeted relief and watch for the trouble brewing in particularly hard hit sectors. Services business — restaurants, entertainment, travel, hotels, airlines — that depend on personal contact have been among the most severely damaged during the pandemic closures.
Thus far, pandemic relief by governments in the 19 countries that use the euro has helped hold down unemployment and prevent mass layoffs. It has also helped to avert bankruptcies by otherwise viable companies, which in turn has helped the banks that loaned those companies money. Nonetheless, bank profits remain weak.
The eurozone economy shrank 0.6 percent in the first quarter but economists are expecting renewed growth for the rest of this year as the pace of vaccinations picks up and more countries remove restrictions on face to face contact.
