Corporate balance sheets: assessing the damage

The deep recession during the first half of this year has strained balance sheet s of euro area companies significantly. As profits dropped, corporate leverage rose sharply. A detailed analysis , however, reveals a more nuanced picture. When adjusting for cash holdings, corporate leverage remains below the peak reached in 2015. Moreover, the rebound in activity during the second half of 2020 will reduce leverage again mechanically. Finally, the costs for servicing debt remain at record lows. Overall, the deterioration of corporate balance sheets has been so far less severe than feared and does not by itself endanger the recovery. The biggest risk to the outlook at this stage remain s a significant stepping up of containment measures as new infections keep rising.