The number of so-called zombie companies is spiking and could soon represent more than one in five U.S. firms, thanks to the coronavirus pandemic.
What it means: "Zombies" are firms whose debt servicing costs are higher than their profits but are kept alive by relentless borrowing.
What they're saying: "This is a macroeconomic problem because zombie firms are less productive, and their existence lowers investment in and employment at more productive firms," Deutsche Bank Securities chief economist Torsten Sløk said in a note to clients Thursday.
- "In short, one side effect of central banks keeping rates low for a long time is that it keeps more unproductive firms alive, which ultimately lowers the long-run growth rate of the economy."
What's next: "This trend ... is likely to continue going forward given the Fed’s commitment to keeping rates low and the ongoing support from the Fed to credit markets."
Go deeper: Corporate debt issuance has already topped $1 trillion in 2020
