How threatening are the high levels of corporate debt?

ON SEPTEMBER 20THBISGDPGDP the Bank for International Settlements (), the central banks’ central bank, released data showing that corporate borrowing around the world remains at an all-time high. A notable case is in China, where there is even more business borrowing as a share of than in Japan at the peak of its bubble-related borrowing spree in the 1990s. But it is high everywhere (see chart). Corporate debt in the rich world stood at 102% of at the end of March, compared with 92% before the outbreak of the covid-19 pandemic. Could high levels of debt threaten the recovery in advanced economies?Many regulators were sounding the alarm about elevated company debt even before the covid-19 pandemic. Since then, the hit to firms’ incomes has led to a wave of rating downgrades: between March 2020 and March 2021, Fitch, a ratings agency, downgraded 460 firms, or almost 20% of its corporate portfolio. While defaults have eased this year as economies have recovered, many firms will be burdened by higher levels of debt for years to come. Even if interest rates remain low, this “debt overhang” could affect their willingness to invest or to hire new staff.