Pandemic triggers surge in business start-ups across major economies

Pandemic triggers surge in business start-ups across major economies


The coronavirus pandemic has triggered a surge in the number of businesses being set up in many of the world’s largest economies, as entrepreneurs seek to respond to the rapidly changing needs of individuals and companies, and laid-off workers launch their own ventures.

The US, UK, France, Germany and Japan have all logged substantial increases in new company registrations in recent months, despite the severe blow Covid-19 has dealt to global economic activity.

In the US, business formation applications were up 82 per cent in the three months to September compared with the same quarter the previous year.

France registered 84,000 new businesses in October, up 20 per cent on the same month last year and the highest ever recorded — having already experienced a sharp rise in recent years. In Germany, business registrations were above last year’s levels in most recent months, after a sharp fall in the early stages of the pandemic.

In Japan, 10,000 new businesses were registered in September, 14 per cent more than in the same month last year.

Column chart of '000 showing surge in US business formation applications

In the UK business incorporations were up 30 per cent in the four weeks to mid-December compared with the same period last year, and the annual growth rate has been in double digits since June.

Many of these businesses seek to respond to the changing needs of a socially distanced world, such as logistics, home delivery of goods and services, technology, digital wellness and fitness.

In the US official statistics showed online retailing led the surge in business applications, but many sectors, including information, professional services and logistics, contributed to the trend.

Gregory Daco, chief US economist at Oxford Economics, said the US surge included many new businesses set up by sole individuals without dependent workers. This “points to people likely being laid off during the pandemic [and] starting their own company”, indicating that many businesses were created out of necessity, he said.

Line chart of monthly ('000) showing French business creations hit record high

In the UK online retailing was driving registrations, according to an analysis of official data for the first 11 months of the year by the University of Kent. Registrations were also up in food and drink production and takeaway food outlets.

Alfred Duncan, an economics lecturer at the University of Kent, said the figures reflected “a change in the type of new companies set up . . . this is likely a consequence of a shift in consumption patterns during the pandemic”.

Emma Jones, founder of Enterprise Nation, a UK company that helps start-ups and small businesses to develop, said many people had spotted opportunities created by Covid-19 restrictions. It is a good time to start an online business “because [start-up] costs are low and everybody is suddenly buying online”, she said.

Line chart of business incorporations, weekly ('000) showing more businesses created in the UK

Paul Donovan, chief economist at UBS Wealth Management, said that the new businesses “may be too small to provide the sole income stream for their owners — but they may form part of a person’s portfolio of incomes in the gig economy”.

However, in the US the number of new businesses with planned salaried workers was also up, rising 52 per cent over the same period. This is “very encouraging” and reflects the opportunity created by low interest rates and new needs, said Mr Daco.

Column chart ('000) showing Germany’s resilient levels of business creation

David Choi, an economist at Goldman Sachs, said the US data “suggest a much more positive outlook for new business formation than after the last recession”. This is “critical” for the employment outlook, as “new and younger firms historically account for the lion’s share of net job growth”, he added.

Dante DeAntonio, economist at the rating agency Moody’s, said: “The current low interest rate environment and the prospect of rates remaining low for an extended time are likely contributing to strong business formation [in the US].

“Though counterintuitive, some of the largest and most successful businesses were started during recessions.”



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