The Rise of Zombie Companies: Understanding the Threat to the Global Economy

🧟Zombie companies are highly leveraged firms with low revenues and high debt, relying on borrowing to stay in business.

💰Global debt levels have skyrocketed in the past decade, reaching close to 100% of GDP for non-financial corporate debt.

📉Zombie companies face challenges from rising input costs, including higher commodity prices and wages.

💥External shocks, like pandemics, can turn previously healthy companies into zombie companies due to changes in business models and market conditions.

🌍Zombie companies are concentrated in certain sectors, such as manufacturing and retail, and tend to be smaller firms with higher credit risks.

What is a zombie company?

—A zombie company is a highly-leveraged firm that relies on borrowing to sustain its operations due to low revenues and high debt.

What are the main challenges faced by zombie companies?

—Zombie companies face challenges from rising input costs, such as higher commodity prices and wages, along with low revenues and high debt.

Which sectors are most affected by zombie companies?

—Zombie companies are concentrated in sectors like manufacturing and retail, with smaller firms being hit the hardest.

What are the long-term consequences of supporting zombie companies?

—Supporting zombie companies in the short term may prevent immediate bankruptcy and job loss, but it hinders long-term productivity and growth.

What factors can turn a healthy company into a zombie company?

—External shocks like pandemics or changes in market conditions can turn previously healthy companies into zombie companies due to shifts in their business models and economic environment.

00:00Zombie companies are highly leveraged firms that rely on borrowing to stay afloat due to low revenues and high debt.

01:19Between five and ten percent of U.S. firms are estimated to fall into the zombie category.

02:23Zombie companies are concentrated in certain sectors, such as manufacturing and retail, with smaller firms being hit the hardest.

03:58Around 25-30 percent of small cap companies, including unlisted ones, could be falling into the zombie trap.

05:04In the short term, supporting zombie companies helps avoid immediate bankruptcy and job loss but hinders long-term productivity and growth.