The European Central Bank sees existential risks for financially weak companies.
Zombie companies could finally die in an environment of economic decline and ever-higher interest rates.
© Sergey / stock.adobe.com
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According to the European Central Bank, the combination of rising commodity prices and lower economic growth as a result of the Ukraine crisis threatens to overwhelm some companies in the euro area.
The eurozone’s financial system must brace itself for a possible further correction on the investment markets, according to the report on financial stability presented by the ECB every six months. The central bank referred to Russia’s ongoing war in Ukraine and the withdrawal of monetary stimulus to curb inflation.
“The terrible war in Ukraine has caused immeasurable human suffering,” said ECB Vice-President Luis de Guindos. “It has also increased risks to financial stability through its impact on virtually every aspect of macroeconomic activity and the financing environment.”
Russia’s invasion in late February and subsequent sanctions against Moscow have sent commodity prices skyrocketing. Business and consumer confidence has plummeted and the recovery from containment measures has slowed.
ECB policymakers are still keen to start raising interest rates in July. The focus of the debate, meanwhile, has shifted from the timetable to the pace of the tightening.
The European Commission has lowered its forecast for economic growth in the euro area this year. An average of more than six percent is expected for inflation.
According to the ECB, this environment is a problem especially for companies that have never recovered significantly from the corona measures, such as companies in aviation, hotel operators and the beverage industry.
“These vulnerabilities are exacerbated by the prospect of tighter financing conditions, which would have a particularly negative impact on the ability of lower-rated companies to service their debt,” the ECB report said.
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