Debt in a Time of Coronavirus

COVID2, cc Flickr NIH Image Gallery, modified,


Alarm over the economic impact of COVID-19 is mounting – and fast. Equity markets around the world are in freefall, and some analysts are even evoking that most-dreaded year of 2008 to describe the potential impact on global growth.

In the likely event that the virus continues to spread, a wide range of economic repercussions can be expected, the most immediate of which we’re already seeing in stock plunges and downward revisions in corporate earnings estimates. The true pain however may lie in what comes next: an explosion in non-performing loans as ailing companies fail to make good on their obligations.

Only when we see this kind of downward spiral of illiquidity and defaults will the 2008 comparisons ring true. But the bad news is: such a scenario is becoming less far-fetched with every new spike in COVID-19 cases.

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