Impact of the Covid-19 Lockdown on Firm Liquidity and Solvency: The Case of France

The confinement measures introduced in several countries to fight the Covid-19 pandemic have imposed a high toll on many economic activities. In this post, EconPol's Stefano Schiavo and co-authors exploit recent evidence on French firms recently published by the OFCE-SciencesPo to discuss the policy options facing European governments and the broader implications of firm exit for competitiveness. Using data on a large number of French firms, they simulate the impact of the lockdown on their balance sheets to estimate the share of companies facing liquidity or solvency issues. The main results from the simulation exercise show that the lockdown has profound effects on firms, with an estimated increase in insolvencies by almost 80%.