In the years leading up to Covid-19, French corporate debt boomed. This was in marked contrast to its steady decline, as a proportion of the economy, everywhere else in Europe. Much of this was because of the unusually high and rising propensity of French firms to take on leverage to make acquisitions, especially abroad.
Regulators, including the Banque de France, tried in vain to slow the build-up using prudential tools. French corporate debt surpassed 80% of GDP at the end of 2019, including more than €1 trillion in loans from French banks.
As the IMF pointed out in January, interest as a proportion of corporate income before the crisis was already much higher in France than the eurozone average.
This debt hangover is now even more of a concern. French corporate borrowing leapt by €185 billion after Covid-19, according to a Banque de France report in December.
And for most sectors – especially anything related to international travel – the revenue outlook for the next few years is considerably gloomier.
French corporate borrowing leapt by €185 billion after Covid-19
Across Europe, the pandemic has led to a spike in corporate lending: in contrast to prior crises, which have tended to result in deleveraging.