Surviving the Corona: How did European firms cope with the crisis? Evidence from Danish, German, and Norwegian surveys

Abstract

This report investigates the impact of the Covid-19 pandemic on firms in Germany, and compares the results with Denmark and Norway. We document that at the start of the pandemic, firms faced demand-driven challenges that shifted to supply-related challenges over time. The pandemic had a significant impact on all firms, with large firms recovering more quickly than small ones. The decline in workforce was most prominent when government restrictions were implmented, and the subsequent recovery was mainly driven by large firms. Firms that were most severely affected had lower employment levels at the start of the pandemic, but all firms were able to recover a balance in employment by 2022. We show that while short-time work was heavily used at the start of the pandemic, its use declined as the pandemic unfolded, even though this process took more time for small firms. Investment plans declined for firms in all sectors at the start of the pandemic, and investments decreased for the most severely affected firms but increased for those that were able to recover quickly. Moreover, we show that banks played a key role in accommodating credit negotiations. By 2022, firms in Europe had converged in terms of Covid-19 impact, and the most impacted firms continued to use more short-time work.