Biggest Crisis Test Is Still to Come With Insolvencies, BIS Says

© Bloomberg. A chain and lock secures an entrance at a Macy’s Inc. location temporarily closed in Honolulu, Hawaii, U.S., on Monday, May 11, 2020. Hawaii reports no new virus cases for the first time in nearly two months, the Associated Press reported. Photographer: Marie Eriel Hobro/Bloomberg


(Bloomberg) — Policy makers are facing the most economically challenging part of the Covid-19 crisis in avoiding the creation of “zombie” companies, according to the Bank for International Settlements.

Ultra-easy monetary and fiscal support is helping companies avoid a liquidity crunch after the pandemic closed down businesses and demand collapsed. But that stance bears risks longer-term, said Claudio Borio, head of the Basel-based institution’s Monetary and Economic Department.

“There’s a delicate balance to be struck between on the one hand withdrawing it too early, which will obliviously have short-term costs in terms of economic activity, and withdrawing it too late, which will mean that it will not favor necessary structural adjustments,” he said on Monday.

Officials in Europe and the U.S. have unleashed unprecedented easing in response to the Covid-19 outbreak, which has pushed up equity markets even as economies face their deepest recession in decades.

While the liquidity measures have helped companies stay afloat, there are concerns they may also be creating a swathe of uncompetitive firms that hold back investment and innovation.

“The real challenge is to distinguish between viable and non-viable firms, which, given the uncertainty about future demand patterns, is not straightforward,” Borio said.

©2020 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

READ  Amazon Internet? Filings show company working on high-speed satellite internet service

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Please enter your comment!
Please enter your name here