High numbers of unproductive firms will cut GDP growth

Significance

Low interest rates and easy financing conditions in major economies have triggered a search for yield on the part of investors flushed with liquidity and this has allowed so-called 'zombie' companies -- whose operating profits are not sufficient to service their debt -- to obtain financing to stay in business.

Impacts

• Estimates of the zombie problem's scale may be understated, if unlisted small and medium-sized firms are worse affected than listed ones.
• US studies find that having fewer new firms in an industry cuts business dynamism and worker mobility, as well as sustaining zombie firms.
• The more unproductive zombie jobs that Europe’s job retention schemes keep alive, the lower longer-term productivity will be.