By Ralph De Haas and Çağatay Bircan
After years of rising indebtedness and the Covid-19 pandemic, financially weak firms are constraining business dynamism across emerging Europe.
This fourth in series of five columns looks at zombie lending and its economic implications. Zombie lending – the evergreening of cheap loans to unviable firms – turns out to be especially prevalent when banks are undercapitalised or state-owned and where insolvency frameworks are weak. Zombie firms create negative spillovers for healthy companies (which experience lower investment, revenues, and employment) and these effects are especially pronounced along the value chain.
Link: Corporate debt and business dynamism in emerging Europe