The COVID-19 pandemic has resulted in an extreme economic shock. In order to contain the pandemic, governments worldwide put in place lockdowns and restrictive measures, imposing physical distancing, limiting mobility and contacts, and ultimately closing frontiers and activities in the sectors most exposed to contagion. Gross domestic product (GDP) contracted by more than 10% in OECD countries over the first two quarters of 2020 (OECD, 2020[1]). Output picked up sharply in the third quarter, as containment measures were progressively relaxed but remained below pre-pandemic levels at the time of drafting. On a positive note, the rebound has been faster than expected. Global GDP growth is projected to be 5.8% in 2021 and 4.4% in 2022, with global output expected to rise by nearly 6% this year, an impressive surge after the 3.5% contraction in 2020 (OECD, 2021[2]).

Small- and medium-sized enterprises (SMEs) have been at the epicentre. As shown in Chapter 1, SMEs are disproportionately represented in the industries and services significantly impacted by lockdowns (OECD, 2020[3]), which compounded pre-existing vulnerabilities from limited cash reserves. In the United States, for instance, half of SMEs operate with less than 27 days of cash reserves (JP Morgan and Chase Co., 2020[4]). Falls in turnover as a result of lockdowns have been severe. According to the Facebook/OECD/World Bank survey, among SMEs that succeeded in remaining open from May to December last year, between 50%-70% saw sales fall and 33%-50% saw falls of more than 40% (Facebook/OECD/World Bank, 2020[5]) (Chapter 1). Exacerbating these challenges has been the more limited ability of smaller firms to adopt new digital practices (OECD, 2021[6]).

The impact on entrepreneurship and business dynamics has been less striking but this may only have been postponed. Whilst some innovative young firms have reacted fast and flexibly to the pandemic (OECD, 2020[7]), this has not been universally the case, with start-up rates declining significantly in some sectors such hotels and restaurants, real estate and arts and entertainment in most countries. Moreover, the crisis has exacerbated major challenges to start-ups that existed prior to COVID-19 (OECD, 2021[8]). In addition, whilst start-rates in general picked up strongly in the second half of 2020 in nearly all countries (where data are available), it is still uncertain whether this reflects opportunity- or necessity-driven entrepreneurship, on the back of rising unemployment. And whilst there has been no significant increase in bankruptcies over the period (Chapter 1), there are risks that these could begin to rise if government support mechanism and regulations are unwound too quickly – especially given rising debt levels. Indeed, in some countries, there are already signs that more firms are exiting their market (OECD, 2021[9]).

Policy responses were quick, strong and effective in cushioning the blow. Governments worldwide have reacted by deploying massive support. Wage subsidies, deferrals of payments and loan guarantees have been the most popular measures put in place. Central banks have eased monetary conditions to enable more loans to SMEs. Temporary changes to insolvency procedures have also been effective in reducing bankruptcies (OECD, 2021[10]; 2021[8]).

Public support helped millions of SMEs worldwide. In most OECD countries, between 20%-40% of SMEs (with a Facebook page) received government support in one form or another in 2020 (Facebook/OECD/World Bank, 2020[5]) (see also Box 1.1 in Chapter 1). The size of the emergency packages is unprecedented, albeit with large cross-country differences. The International Monetary Fund estimates that from January 2020 to March 2021, governments have provided additional spending and foregone revenues in response to COVID-19 for about 8.48% of GDP and supported liquidity through equity, loans and guarantees for about 8.28% of GDP (Figure 1) (IMF, 2021[11]). Public policies have helped sustain the short-term liquidity of SMEs and the self-employed (Chapter 1).

Many countries and regions have adopted differentiated territorial approaches to manage the crisis (OECD, 2020[12]). The impact of the crisis has not been felt equally within countries, in part reflecting the differing concentration of activities within regions, with regions dependents on tourism for example, significantly affected (Chapter 1). Subnational governments have therefore also played a critical role in the SME policy response, as a complement to national measures. According to an OECD-European Committee of the Regions (CoR) survey conducted in June 2020 (OECD, 2020[13]), 30% of EU subnational governments were providing large direct support to businesses and the self-employed (e.g. through subsidy schemes, or regional funds for capital risks) and 28% provided large technical assistance and support services to local actors. In Austria, for example, all nine Bundesländer set up aid packages for SMEs to complement and expand measures taken by the federal government.

Inequalities have increased, weakening the foundations of recovery. Despite the multiple buffers governments put in place, the shockwave has hit some firms, places and people particularly hard. These are those that: i) were more dependent on the most affected economic sectors, such as tourism or retail trade; ii) were more deeply integrated into international trade and exchanges prior to COVID-19; iii) have faced more stringent or longer lockdowns and containment measures; iv) had more limited cash reserves and lesser access to finance; v) could not get government support; and vi) informal SMEs (whose informality complicates access to finance and public support) (OECD, 2020[12]; 2020[15]; 2021[8]). This has also exacerbated existing entrepreneurial gender, minority-group and age disparities. Businesses owned by female, minority and younger entrepreneurs tend to be concentrated in the most affected sectors, are on average smaller and younger, have fewer financial assets and more limited access to diversified sources of finance, being typically self-funded, or funded by friends and family (OECD, 2020[16]). The pandemic also disrupted young people’s access to education and employment opportunities, which could have longer-term consequences for future entrepreneurship (OECD, 2020[17]).

The outlook remains uncertain. Despite progress in roll-outs of effective vaccines in many countries, there remains considerable uncertainty, especially given risks of variants of concern that may require new vaccines. Disrupted activities may take time to recover, especially in some sectors such as cultural activities, where human capital may have been lost forever (to new jobs) and networks broken. Many viable businesses could have disappeared and many more may still do so, if government support is withdrawn abruptly.

Structural policies are beginning to be mobilised for recovery, and the number of countries setting up such policies has increased (OECD, 2020[18]; 2021[8]). From June 2020 onwards, many countries launched broader recovery packages aimed at building back better. These packages vary by country in size and content. While they aim to address urgent short-term challenges, they also include a longer-term perspective, with a focus on teleworking and digitalisation, reskilling, start-ups and new markets. Sustainability is often at the core, emphasising the transition to clean energy, resource efficiency and greener consumption.

Three particular themes emerge from the crisis as critical for a fair and sustainable recovery. They are the focus of the three chapters that form the core of Part I:

  1. 1. The rising risk of SME indebtedness and its impact on SME resilience and their future productive investments. Whilst the level of SME indebtedness varies across countries, there is growing concerns worldwide about a growing risk of SME default and the more limited scope for SMEs to drive the recovery through investment (OECD, 2021[8]). This raises more broadly the question of ensuring SMEs can access appropriate and diversified sources of financing. Chapter 2 chapter explores this issue.

  2. 2. Possible relocalisation and return to industrial policies, the core role of local SMEs and the impact on their access to strategic resources and market. The economic crisis may result in a reconfiguration of international trade and investments (Rodrik, 2020[19]). In this context, many reshoring strategies have been developed at the national or territorial level, as a way of reducing dependence on third countries or as a means of preserving sovereignty in strategic areas and supporting local employment (Charbit and Gatignol, 2021[20]). However, the rationale for deglobalisation – or "slowbalisation" (Irwin, 2020[21]) – overlooks the multiple dynamics at play in globalisation and the potential for local SMEs to benefit from positive spill-overs in global value chains (GVCs) or by operating with multinationals and at some close distance from them. Chapter 4 explores this issue.

  3. 3. The effect of the crisis on digitalisation, innovation, business dynamics and entrepreneurship. During the crisis, there has been mounting evidence and examples of SMEs integrating new digitally-enhanced practices and tools in their operations (OECD, 2021[6]), small businesses developing creative solutions or social innovation initiatives (OECD, 2020[22]). However, the process of economic change often implies the need for firms not just to adapt but also for some to exit. As past OECD research has shown, the scars from a large recession are likely to be smaller in countries where entrepreneurial conditions are supportive and business dynamics favours the reallocation of capital and labour to the most efficient firms (OECD, 2021[2]). Chapter 5 explores this issue.


[20] Charbit, C. and C. Gatignol (2021), “Territorial attractiveness strategies for a resilient development. The case for reshoring policies”.

[5] Facebook/OECD/World Bank (2020), Future of Business Survey.

[11] IMF (2021), Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic (April 2021), International Monetary Fund, (accessed on 9 May 2021).

[14] IMF (n.d.), Policy Tracker, International Monetary Fund, (accessed on 9 May 2021).

[21] Irwin, D. (2020), “The pandemic adds momentum to the deglobalisation trend”, PIIE Realtime Economic Issues Watch,

[4] JP Morgan and Chase Co. (2020), Cash is King: Flows, Balances, and Buffer Days,

[10] OECD (2021), “Business dynamism during the COVID-19 pandemic: Which policies for an inclusive recovery?”, Tackling Coronavirus (COVID-19): Contributing to a Global Effort, OECD, Paris, (accessed on 4 March 2021).

[2] OECD (2021), OECD Economic Outlook, Interim Report March 2021, OECD Publishing, Paris,

[8] OECD (2021), “One year of SME and entrepreneurship policy responses to COVID-19: Lessons learned to “build back better“”, OECD Policy Responses to Coronavirus (COVID-19), OECD, Paris,

[6] OECD (2021), The Digital Transformation of SMEs, OECD Studies on SMEs and Entrepreneurship, OECD Publishing, Paris,

[9] OECD (2021), Timely Indicators of Entrepreneurship (dataset), OECD, Paris,

[18] OECD (2020), “Coronavirus (COVID-19): SME Policy Responses”, Tackling Coronavirus (COVID-19): Contributing to a Global Effort, OECD Paris,

[3] OECD (2020), OECD Economic Outlook, Volume 2020 Issue 1, OECD Publishing, Paris,

[1] OECD (2020), OECD Economic Outlook, Volume 2020 Issue 2, OECD Publishing, Paris,

[22] OECD (2020), “Social economy and the COVID-19 crisis: Current and future roles”, OECD Policy Responses to Coronavirus (COVID-19), OECD, Paris, (accessed on 12 March 2021).

[7] OECD (2020), Start-ups in the time of COVID-19: Facing the challenges, seizing the opportunities, Tackling Coronavirus Series, (accessed on 22 June 2020).

[13] OECD (2020), “The impact of the COVID-19 crisis on regional and local governments: Main findings from the joint CoR-OECD survey”, OECD Regional Development Papers, No. 05, OECD Publishing, Paris, (accessed on 22 December 2020).

[12] OECD (2020), “The territorial impact of COVID-19: Managing the crisis across levels of government”, OECD Policy Responses to Coronavirus (COVID-19), OECD, Paris,

[15] OECD (2020), “Tourism policy responses to the coronavirus (COVID-19)”, OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris,

[16] OECD (2020), “Women enterprise policy and COVID-19: Towards a gender-sensitive response”, Webinar, OECD, Paris.

[17] OECD (2020), “Youth and COVID-19: Response, recovery and resilience”, OECD Policy Responses to Coronavirus (COVID-19), OECD, Paris, (accessed on 7 March 2021).

[19] Rodrik, D. (2020), “Reshaping economic strategy after COVID-19”, Online presentation, 4 May 2020, OECD, Paris, (accessed on 15 March 2021).

Metadata, Legal and Rights

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Extracts from publications may be subject to additional disclaimers, which are set out in the complete version of the publication, available at the link provided.

© OECD 2021

The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at