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.

Past experience shows that extensive credit rating downgrades in the corporate sector can generate adverse second-round effects that exacerbate crises. A recent study by the European Systemic Risk Board (ESRB) illustrates how important this vulnerability may be. Specifically it is estimated that investment funds and insurance companies hold the bulk of BBB rated corporate debt holdings, one-third of which are associated with sectors considered to be pandemic-sensitive. A large-scale downgrading of this debt to below investment-grade status would entail considerable potential losses for the entire European Union (EU) financial system. Credit rating agencies play a fundamental role in this process. Accordingly, when making their assessments, they need to take into account the long-term outlook for the corporations concerned and avoid excessively procyclical behaviour. Indeed, this time round, credit rating agencies appear to have been more cautious than in the global financial crisis and, to date, there has been no recurrence of incidents comparable to those seen in the past. In any event, the results of this exercise show the systemic importance of this vulnerability and the need to be ready to provide a sufficient, internationally coordinated response, depending on how the pandemic develops worldwide. Turning now to the real estate market, this sector’s starting point was unquestionably less vulnerable than in the previous crisis, after a very significant correction both in housing investment and house prices in the past decade and with a much lower share of highlyleveraged new mortgage origination since 2008.