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Rising level of corporate debt: a risk to the global economy

June 2019

Corporate finance: the deleveraging myth

Corporations have gorged on cheap debt since the 2008 financial crisis. That’s unlikely to end well.

It’s all about the debt. Since excessive borrowing led to the global financial crisis in 2008, deleveraging has been widely seen as the only route out of the mess.

Companies don’t appear to have taken any notice. Instead of diversifying their funding sources, firms have chosen to borrow money in record amounts, a lot of it via the bond market.

In some ways this is a rational choice, with benefits for the economy. However, it could also store up trouble for the future: the IMF has warned that “with debt at historically high levels, the corporate sector is vulnerable to large economic and financial shocks”.1 We agree.

Firms have chosen to borrow money in record amounts. In some ways, this is a rational choice. However, it could store up trouble.

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