The IMF’s global financial stability report, released in October, once again drew attention to the build-up of speculative and at-risk corporate debt in large economies, notably the US and Europe.
Debt owed by companies whose earnings are insufficient to cover interest payments (debt-at-risk) and speculative-grade debt are already elevated in several major economies.
It is hardly news that in a world of repressed rates this risky credit has been underpriced and oversupplied.
However, the IMF now finds that, thanks to low-cost, easy terms and competition to lend, rising problem debt could soon exceed crisis-era levels should trade tensions and slowing growth lead to an economic downturn much milder than the one that followed the global financial crisis (GFC).
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