Global business has become a casualty of the COVID-19 pandemic. In an effort to keep afloat, companies across the globe are running up huge debts. At present, most firms face a dilemma: should they declare bankruptcy or get into debt. London-based asset management group Janus Henderson made research having polled 900 large firms. Experts reckon that the global corporate debt will balloon by 12% to $9.3 billion in 2020.
Analysts recorded a sharp 8% increase in corporate debt also in 2019. Companies borrowed for merger and acquisition, stock buy-backs, and dividend payments. The difference is that back in 2019 firms applied for a loan for business development. Nowadays, they borrow to survive the pandemic aftermath. Indeed, severe restrictive measures launched by governments inflicted heavy losses to businesses. Being the most vulnerable, small and medium-sized firms are trying their best to revive their business at least to the pre-crisis level. According to the survey by Janus Henderson, American companies account for almost half of the global corporate debt, they hold $3.9 trillion in loans. German companies have to repay the debt of $762 billion. Notably, some of German companies bear tremendous debt burden. Volkswagen has accumulated a massive debt of $192 billion. Amid the buoyant demand for credits, the global credit market had to suspend lending to the majority of firms in March. Loans were available only to companies with a high credit rating.
The World Bank warns that the global economy is on the verge of the most severe downturn since World War II. Advanced economies are expected to slump 7% in 2020 whereas emerging markets are likely to contract 2.5%.
