Second, if these programmes are extended for a very long period to all the economy’s industries and firms they may eventually hamper the reallocation of productive resources that may be necessary after the crisis. Finding the right balance between continuing to provide the necessary protection and maintaining a sufficient degree of selectivity will require the practically constant reassessment and adaptation of these instruments in coming quarters. At the same time, to facilitate structural adjustment, it is necessary to ensure that the various flexibility mechanisms that firms have available in the present employment framework are functioning properly. This is especially important in a context, like the one I have described, that is changing and surrounded by significant uncertainty. 4  There has been a certain recovery from the lows recorded in April (-10.5%). The evidence available from previous crisis episodes, which should be interpreted with caution as it relates to recessions very different from the current one, suggests that there is an appreciable risk that the decline in the number of registered firms in recent months may ultimately cause permanent damage to the Spanish productive system. In particular, in the past there has been a relatively high correlation between falls in the number of firms registered for Social Security and increases in the number of firms filing for insolvency. 16  However, as well as reorientation towards certain groups of agents, another change to the design of the support measures for households and firms that may be necessary in future relates to the specific instruments used.

Non-financial corporations (NFCs) faced this shock from a more favourable financial position than was the case before the global financial crisis. Specifically, in recent years 4  they had lowered their debt levels substantially, to below the European average at end2019, and had higher liquidity buffers. Moreover, the sectoral distribution of activity was more balanced than prior to the previous crisis. However, the information for the first half of the year shows that NFCs have seen their profitability plummet. Their return on assets (ROA) halved, falling from 4% to 2%, and the proportion of NFCs with low profitability increased. Simulations by the Banco de España point to a strong contraction in firms’ profitability in 2020 as a whole, with SMEs trending more unfavourably, especially those in hospitality and leisure, motor vehicles, wholesale and retail trade, and transport and storage. The simulations on firms’ liquidity, on the basis of the aforementioned macroeconomic scenarios and incorporating the impact of the economic policy measures implemented, anticipate that the percentage of firms with liquidity needs in the period spanning the second and fourth quarters of this year will increase as a result of the pandemic by almost 10 pp, to 70%. The information on bank lending shows that firms are resorting to this source of financing to cover a sizeable portion of their liquidity needs. Specifically, the outstanding balance of NFCs’ borrowing from national credit institutions increased at a record-high pace, shifting from an annual contraction of 1.1% in February to an annual expansion of 8.1% in June.