COVID-19 and Disruptions of Trade Credit Along Supply Chains

We show that the COVID-19 pandemic threatened the supply chains, as reflected by disruptions in the flow of trade credit in Europe. Countries with less stringent initial policy responses experienced greater disruptions. For the European countries in the top tercile of relaxedness in terms of initial government policies after the World Health Organization (WHO) declared COVID-19 a pandemic, we estimate that for every €100M in sales, firms extended around €4.6M–€7.5M less credit compared to firms in countries with more stringent initial responses. Deviations from EU/WHO-recommended lockdown stringency seem to have created a public-health policy uncertainty effect. This uncertainty effect was most pronounced among downstream firms, where trade-credit disruptions were most severe.