A World Full Of Zombies: Global Revenue Growth Has Collapsed

Sunday, February 17, 2019
By Paul Martin

by Tyler Durden
Sun, 02/17/2019

We have previously discussed extensively (here, here and here) how a decade of ultra low rates ushered in by central banks has spawned a generation of “zombie companies”: corporations which under any other conditions would not survive due to their massive debt load and subpar cash creation, yet which continue to thrive thanks to ZIRP and NIRP, which make their interest expense sustainable preventing inevitable defaults, which in turn lead to subpar productivity and a general contraction in economic and corporate output.

And while we won’t spend more time on a topic that has been extensively dissected here in the past, we’ll point out several observations from a recent presentation by Goldman which details the creeping zombification of the world, as increasingly manifest in both economic and market indicators, starting with the collapse in long-term real global GDP growth, which is now at a “historical low.” Whereas much of investor focus in recent months has been on cyclical growth risks, spurred by concerns over rising interest rates, a slowing US fiscal boost, QT and US/China trade relations, Goldman’s Peter Oppenheimer points out that we are already in if not growth hell, then certainly purgatory, as “there is a more important structural story on growth that is likely to have a meaningful impact on equity and asset market pricing over the medium term: trend growth has slowed.”

Indeed, despite the move towards zero interest rates, the large expansion of central banks’ balance sheets and the substantial fiscal expansion in the US, the outcome has been the opposite of that desired by central banks as long-term growth forecasts have continue to decline, and as the chart below shows, this has been a fairly consistent pattern since the financial crisis. Meanwhile, actual nominal GDP has continued to weaken in the US, and even more so in Europe and Japan.

This secular decline in global growth is consistent with the message sent from interest rates, as nominal bond yields have also continued to decline despite central banks now collectively owning about a third of global sovereign debt. As Goldman notes, “in the UK, where we have a very long history, 10-year bond yields have fallen back towards record lows since the 1700s. Meanwhile, in Germany, 10-year yields have collapsed and could fall further.” As a result, nominal yields back below zero cannot be ruled out – during the QE period, both 2-year and 5-year Bund yields fell deeply into negative territory.

The Rest…HERE

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