Low global corporate profit growth forewarns possible earnings and economic recessions as leveraging worsens, according to S&P Global Ratings.
In a report published Tuesday, the ratings agency analyzed the corporate debt, leveraging and earnings trends of over 20,000 mostly medium-sized non-financial companies globally.
"Corporate leverage is worsening in 2019 as debt rises faster than earnings for non-financial companies," said S&P Global Ratings Credit Analyst Terry Chan.The report revealed that debt and earnings rose in tandem between 2011 and 2017, but the trend diverged in the first half of this year, with debt growth surging while earnings growth fell. It went on to warn that weak earnings growth threatens to drive up corporate leverage. S&P analysts recently raised the risk of a U.S.
Of the companies analyzed, 85% are unrated by S&P, but its rated portfolio typically consisting of larger firms showed a similar trend. Although projecting improving earnings growth for the rated portfolio in 2019 compared to last year, while the unrated sample is declining, debt growth among the larger companies is predicted to accelerate at a faster rate than earnings.
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