It’s not just developed-world companies – emerging-market firms have been on a borrowing binge too. Their debts have ballooned from $4trn to $18trn between 2004 and 2014, according to the International Monetary Fund, with corporate borrowing as a share of GDP climbing from around 45% to 74%.
China, Turkey, Russia, Korea and Brazil all look vulnerable. Each has seen private-sector debt grow by 30% of GDP in the past decade – which tends to imply a banking crisis, says Capital Economics. In Korea and Brazil, around half the increase has come from household borrowing. But this time the fallout should be “less severe than in the past”.
Current account positions are stronger, implying less external debt, which means less scope for a banking crisis induced by an external shock. Meanwhile, the debt is mostly financed locally. This avoids a squeeze caused by the local currency falling against foreign currencies. Banks are also in better shape.
But while there may be no “debt Armageddon” in these nations, growth will be pressured for “many years to come, as the legacy of the past decade’s boom is worked through”. Worries over the corporate debt load, along with declines in commodities and jitters over global growth, are likely to prompt investors to charge governments more to borrow too. Emerging markets face a rocky ride.