High and rising levels of corporate debt in the face of excess capacity and declining profitability suggests a greater risk of corporate defaults, which could ultimately lead to disruption in the financial system.
There have been many positive signals from the leadership about improving the sustainability of growth, including recent calls to implement so-called ‘supply-side’ reforms, with a view to facilitating deleveraging in the corporate sector and reducing excess capacity in key industries. Nonetheless, the direction of policy so far has tended towards more, rather than less, accommodative monetary and fiscal settings.