"The indebtedness of companies in certain emerging countries has become massive and some of them are over-indebted and will have problems making repayments when interest rates rise," said the specialist. "It's a serious subject," said one debt specialist on condition of anonymity. Ultra-low interest rates have allowed companies with little or no profits to continue operating by lowering their costs, making them the "walking dead" of the corporate world.īut as interest rates tighten, a move already underway in the United States and likely to happen in the eurozone within a couple of years, the cost of servicing loans could quickly exceed profits, forcing them to restructure or close.Ī wave of failures and defaults on bonds could then quickly pull the rug out from under the global economy. So-called "zombie firms" are in the frontline of risk. "Indebtedness of households and corporations has reached record levels in many countries," OECD chief Angel Gurria said recently. The IMF, OECD and economists have pointed to the rising gearing of companies which, having bulked up on borrowing amid ultra-low interest rate policies meant to fuel economic recovery, now face the prospect of rising interest rates.
Risks this time could stem from private firms succumbing to unsustainable debt. "Pleasant as it may be to bask in the warmth of recovery … the time to repair the roof is when the sun is shining," Kennedy advised lawmakers as the US economy recovered from recession, she reminded listeners in an October speech. Kennedy to impress upon governments that they need to address potential problems now. IMF chief Christine Lagarde has taken to quoting US president John F. The International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD) expect the global economy to grow by 3.7 percent in 2018 and their forecasts are infused with an optimism unseen in over a decade.īut that doesn't mean that governments should be complacent, they caution. is behind us and this growth gives us reason to believe it is sustainable," the EU's economic affairs commissioner Pierre Moscovici said recently. Meanwhile the eurozone is finally expanding at a reasonable pace after years of anaemic performance and emerging nations like Brazil are expected to rebound from recession.