BlackRock Investment Institute

Macro insights

An eye on business borrowing

Corporate borrowing has surged since Covid-19 broke out, providing a bridge through the shutdown. There are fears this borrowing spree could lead to rising bankruptcies as companies struggle without government support. Yet we don’t see this as the start of a broad deleveraging cycle, of the sort that triggered a credit crunch after the global financial crisis (GFC). This is one reason we see the cumulative shortfall in economic activity over time being far less than after the GFC.

U.S. non-financial bond issuance and borrowing, 2008-2020

Sources: BlackRock Investment Institute and Federal Reserve, with data from Haver Analytics, Oct. 2020. Note: The orange line (left axis) shows year-on-year growth in net non-financial corporate bond issuance in the U.S. The yellow line (right axis) shows year-on-year bank loans to non-financial businesses in the U.S.

There was little overheating in the economy and financial system before the pandemic. Business borrowing has accelerated over the past six months to bridge a sudden disruption in incomes and protect productive capacity. Corporate issuance, the mainstay of U.S. business funding, has grown sharply, and U.S. bank lending has shot up, driven by government Paycheck Protection Program loans. The GFC, by contrast, saw a borrowing spurt prior to the crisis driven by excessive optimism and easy financing. Once the crisis started, borrowing ground to a halt.

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