Ratings agency S&P Global warns global debt will have bigger impact than before 2008 financial crisis

The rating agency said a stress test applied to some 20,000 unrated companies indicated a significant increase in the number of potential losses and defaults to 10% by the end of this year, from 7% at the end of last year.

However, looking only at China, the agency said the number of loss-making companies could triple to 22% under severe stress, posing a “contagion risk” for the world, Chinese corporate debt accounting for one-third of global corporate debt.

The report says a sharp slowdown in major economies would pose a significant risk to non-financial corporations and lead to a global recession.

“In the mostly unrated sample of companies, we found that the consumer discretionary, industrials and real estate sectors have not fully recovered from COVID. Our stress test sees their losses increase by more than half, reaching 23%, 27% and 24%, respectively,” he said.

As for banks and other financial institutions, they would also face significantly tighter market conditions, which would prove difficult for some.

Households would also feel the pain, but delinquencies are unlikely to see a dramatic increase, depending on the continued resilience of the labor market.