Zombies or bankruptcies?

We look at the situation of companies in the United States and the euro zone. Two trends are possible going forward: A sharp rise in bankruptcies (we look at the High Yield default rate as an indicator of bankruptcies), due to the fall in activity and the increase in debt; The proliferation of zombie firms, due to the deterioration in balance sheets, but a limited number of bankruptcies thanks to public subsidies and very low interest rates. In 2018, the proportion of zombie firms was already 18% in the United States and 14% in the euro zone. At present, the default rate remains low compared with what would be commensurate with the fall in GDP, which reflects the scale of the support received and leans towards the zombie scenario.