EIU: "Global Economy Will Zombie-Like Like Japan Due to COVID-19... Low Growth, Low Inflation, High Debt"

In the report on the 28th, "Zombie characteristics likely to become common in other advanced countries as well"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The British economic analysis agency Economist Intelligence Unit (EIU) has warned that the global economy will become a long-term "zombie" economy, similar to Japan's economy characterized by low growth, low inflation, and high debt levels, due to the impact of the novel coronavirus infection (COVID-19).

In a report titled "COVID-19 Triggers Global Economic Zombie-ization," released on the 28th (local time), the EIU predicted that "the zombie characteristics shown by Japan's economy, such as low growth, low inflation, and high debt, will become common in other advanced countries due to the impact of COVID-19." Typically, the term zombie companies refers to firms whose financial condition has deteriorated to the point where they cannot even pay loan interest from net profits.

The EIU pointed out that before the outbreak of COVID-19, Japan experienced a lost 20 years and attempted to revitalize the economy through stimulus measures but failed, leading the market to regard it as an "economically abnormal part." It added that the COVID-19 crisis will continue until a vaccine is developed, and the zombie-ization of the global economy after COVID-19 will persist for a long time.

As a side effect of major countries injecting massive fiscal funds in response to the COVID-19 shock, the EIU forecasted that the public debt-to-GDP ratio of advanced countries will rise to 140%. The scale of stimulus measures announced so far by the Group of Twenty (G20) amounts to about $11 trillion (12,480 trillion won), which is comparable to the GDP of three countries: Japan, Germany, and France, the EIU explained.

Agas Demarez, head of global outlook at the EIU, pointed out that advanced country governments hope that the burden of public debt will ease over time as nominal growth rates remain higher than inflation. However, if inflation unexpectedly rises rapidly, interest rates will have to be raised, which could make it difficult for governments to bear their debt burdens.

The EIU also expressed concern that government policies might only extend the lifespan of low-productivity companies, thereby increasing the number of zombie companies. Demarez added that as these companies increase, they will focus on repaying loans over several years instead of investing funds in research and development (R&D).

This content was produced with the assistance of AI translation services.