Europe’s energy crisis is likely to prompt a surge in zombie firms across key eurozone economies, with UK companies looking particularly vulnerable, Bank of America Corp. strategists say.
(Bloomberg) — Europe’s energy crisis is likely to prompt a surge in zombie firms across key eurozone economies, with UK companies looking particularly vulnerable, Bank of America Corp. strategists say.
A growing number of firms are slowing or halting production in the face of surging energy costs, as Russia squeezes gas deliveries and power-plant outages further sap supply, according to a BofA note. That’s a sign that more zombies, which refers to companies that aren’t earning enough to cover their interest expenses, have emerged in Europe in the last quarter, halting a post-Covid decline.
Over the past three quarters, the proportion of zombie firms has remained at about 7.5% after easing from a peak of more than 14% in December 2020. However, BofA data shows an uptick in zombies across core European nations during June this year, with the utilities sector holding the highest share.
Sterling credit looks particularly vulnerable to Europe’s energy crisis, amid UK policy uncertainty ahead of the upcoming selection of Britain’s prime minister. The number of UK company insolvencies rose to 1,827 in August, almost a 70% year-over-year jump, contributing to a large share of Europe’s new zombies, according to BofA strategists.
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