Economist: ‘Zombie companies’ may pose systemic risk

August 22, 2022 Sophia Flores US 0

398770 02: The Carnival Corp. cruise ship Fascination sets sail December 17, 2001 in Miami, Florida. Setting the stage for a battle of the cruise-ship giants, P&O Princess Cruises PLC rejected on December 16, 2001 a 3.2 billion pound ($4.61 billion or 5.16 billion euro) hostile takeover offer from Carnival Corp. and reaffirmed its merger plans with Royal Caribbean Cruise Lines Ltd. (Photo by Joe Raedle/Getty Images)

398770 02: The Carnival Corp. cruise ship Fascination sets sail December 17, 2001 in Miami, Florida. (Photo by Joe Raedle/Getty Images)

OAN Newsroom
UPDATED 10:55 AM PT – Monday, August 22, 2022

Managing director of the Institute of International Finance, Sonja Gibbs, warned of rising risks posed by so-called ‘zombie companies’ to the US economy.

During an interview on Sunday, Gibbs said that many companies accumulated unsustainable levels of debt over the past decade due to ultra-low interest rates. As a result, these companies need a bailout or more loans in order to continue to operate. Gibbs said that some of these ‘zombie companies’ need to be kept afloat because their failure would pose a systemic risk.

“Amongst the list of zobidie companies you might find a company like Wework. You know, a company that has been very successful, but at the same time the pandemic has changed a lot of things for that company,” said Gibbs. “Carnival Cruise Lines is another good example of a type of company who’s now in the zombie category or some of the meme stock, you know AMC or GameStop. So these are really household names.”

Gibbs went on to say that rising wages and input costs, amid inflation, could make these companies unable to borrow more money which would result in a collapse.