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Everyone seems to be in a bit of a debt bind at the moment: The US government has run out of credit to spend, high inflation and interest rates have taken a big bite out of debt-laden tech companies that expected pandemic-era growth to continue and US credit card debt reached nearly $1 trillion in the fourth quarter of 2022, according to TransUnion.
Last year was bad for credit on all counts as Covid-zero policies in China, Russia’s war on Ukraine and the associated energy crisis and high inflation led to turbulent markets, pushed up borrowing rates and slowed the global economy.
Economists are hoping that this year brings better news, but 2023 is unlikely to provide the clean break investors are hoping for. Governments have diminishing fiscal options to deploy after piling on debt during the pandemic and individual borrowers face a prolonged period of elevated interest rates.
Profit pressures on corporate borrowers, meanwhile, are intensifying at an especially rapid pace as business costs remain elevated while consumer demand wanes amid the prospects of an economic downturn.
High borrowing costs and an uncertain economic outlook mean that companies are trading in the prospect of rapid growth for smaller debt loads. Fourth-quarter earnings reports show that the pace of debt reduction accelerated to -1.6% for the year, from -0.9% in the third quarter, according to Bank of America.
But businesses that don’t have cash to pay down debt loads may face the music in 2023. Economists at S&P Global Ratings forecast that speculative-grade (perceived to have