Firm entry has rebounded after the drop experienced during the first COVID-19 lockdowns of early 2020, yet the recovery in entry rates is highly heterogeneous across countries, with possible long-term implications for employment and output growth. Financial support to firms’ liquidity and temporary changes to insolvency procedures have been effective in reducing bankruptcies, on average, by more than 30% relative to the pre-pandemic period. Policy measures may have protected viable and productive firms and avoided the systemic risks posed by a wave of bankruptcies, but at the risk of potentially keeping non-viable (the so-called zombie) firms afloat. Governments should implement a balanced strategy to phase out emergency support policies and pursue a gradual approach focusing on restoring the equity of distressed firms, encouraging timely debt restructuring and improving the efficiency of liquidation procedures, with the aim of fostering resource reallocation.
