The outlook for business bankruptcies
Giulio Cornelli and
Egon Zakrajšek ()
No 30, BIS Bulletins from Bank for International Settlements
Economic growth and forward-looking indicators of default risk inferred from equity markets, two variables that together predict business bankruptcies in advanced economies, show bankruptcies rising significantly by the end of 2021. Projections of real GDP growth embedded in the consensus forecast account for the bulk of this projected increase. Unlike in previous downturns, the stock market-based default indicators contribute very little. As these findings underscore, the pandemic and unprecedented government support for the business sector have driven a sizeable wedge between financial market perceptions of default risk and projections for economic activity.
Pages: 9 pages
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