Tuesday , December 1 2020

Threatened economy: So dangerous are zombie companies to the world



Zombie companies are companies that have at least ten years but can not cover their costs with their profits. A report by the Bank for International Settlements (BIS) now reveals that there are more and more such companies – with significant economic implications.

Low interest rates are the culprits

According to the BIS report, low interest rates, in particular, have led to the emergence of zombie companies. Because low interest rates lead to high borrowing and reduce debt pressure.

The loans require zombie companies to liquidate at least part of their accounts and stay afloat in the medium term.

In a research report, Deutsche Bank also made the low interest rates of the last ten years responsible for the rise of zombie companies.

Proportion of zombie companies rose

In their study, BIS experts take into account a total of 14 countries – including Germany. Between 1980 and 2016, the proportion of zombie companies increased by an average of ten percent.

The study authors are a growing danger to the economy of these companies. Because of their low productivity, zombie companies inhibit employment and investment in other, more productive companies.

Particularly dangerous interest rate increase

However, the greater danger coming from the zombie companies in an increase of interest rate. So the financially overburdened companies can no longer repay their loans. At worst, this leads to a collapse of zombie companies and rising unemployment.

Eoin Murray of Hermes Investment Management told the CNBC news channel that an increase in interest rates could end in a recession. In the long run, this can lead to the extinction of zombie companies and to positive developments in the labor market.

Video: Trump attacks Fed due to interest rate hike


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