Household and Corporate Debt: Covid vs the GFC
- By Sam van de Schootbrugge
- 5 min read
The latest $1.9tn Covid-19 relief package could boost the 2021 US federal government deficit to over $3.5tn. This unprecedented level of fiscal support has, although to a lesser extent, also been seen across most developed economies. As a result, default rates and corporate insolvencies have been lower than past crises. Two new research notes by the Fed and BIS, explore how the crisis has affected both households and corporations. They find;
The widespread availability of loan forbearance decreased delinquencies and defaults, but the percentage of borrowers unable to pay back debt was similar to the Great Financial Crisis (GFC).
The Coronavirus Aid, Relief, and Economic Recovery (CARES) Act increased incomes during the pandemic, and lowered delinquency and/or forbearance rates on mortgages.
Corporate credit losses could cumulate to around 2% of annual GDP during 2020 to 2022, and over two-thirds of these losses are yet to materialise.
These losses will be lower than during the GFC, because service sectors, which have suffered disproportionately during the pandemic, account for a smaller share of total credit than goods and business sectors.
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