Mar 16, 2020 - Economy & Business

The world's debt situation is much worse than in 2008

Illustration: Rebecca Zisser/Axios

Perhaps the biggest risk for financial markets is the potential for wide-ranging debt defaults, particularly as companies have significantly increased their debt load and more are rated at the bottom of the investment grade ratings scale.

Why it matters: The world's companies are in a much worse position amid the coronavirus pandemic than they were ahead of the global financial crisis.

The state of play: Economists at the Institute of International Finance write, "Corporate debt is already very high relative to earnings — and earnings prospects are deteriorating: At nearly $75 trillion, the fast-growing mountain of global corporate debt (ex-financials) is around 93% of global GDP."

  • That's significantly higher than the level of corporate debt in the run-up to the 2008 global financial crisis (75% of GDP).
  • Worse, IIF notes, "Some of the highest debt burdens are in sectors with weak and volatile earnings profiles."

Go deeper: The world's fast-growing mountain of debt

Go deeper

Hotel industry warns of looming financial crisis

Illustration: Sarah Grillo/Axios

Hotel industry lobbying groups have fired a warning shot, exhorting lawmakers to provide them with financing to avoid a series of debt defaults they say could set off a widespread financial crisis.

Why it matters: Without the bailout — which would be in addition to government funds from the $2 trillion CARES Act — the industry says its members could be the first in a wave of debt defaults that would hit everyone from real estate investors and pension funds to average homeowners.

Coronavirus could lead to a wave of defaults for oil companies

A Shell employee in Bangkok filling up someone's gas tank. Photo: Mladen Antonov/AFP via Getty Images

Already struggling with mounting debt and falling market valuations, energy companies are at serious risk for mass bond defaults, especially those rated below investment grade, as oil prices now have fallen by more than 50% from their early January peak.

What's happening: Oil explorers and producers have around $86 billion of debt maturing over the next four years and companies with junk-rated debt were expected to have a hard time getting new financing this year, even before the COVID-19 and the weekend's OPEC fallout.

Debt crisis awaits in emerging markets

Illustration: Eniola Odetunde/Axios

Many of the world's poor and developing countries could begin defaulting on their bonds in the coming weeks as the coronavirus outbreak has led to massive outflows from emerging market assets and real-world dollars being yanked from their coffers.

Why it matters: The wave of defaults is unlikely to be contained to EM assets and could exacerbate the global credit crisis forming in the world's debt markets.