The rate of corporate defaults for companies in the United States could soar if the economy tips into a “shallow recession,” S&P Global analysts warned on Monday.
According to S&P Global Ratings, the default rate for American companies could reach 3.75 percent by September 2023 if the Federal Reserve’s hawkish policy of raising interest rates prompts a shallow or mild economic downturn.
In a far worse scenario in which a more serious economic downturn occurs, default rates could reach 6 percent, the highest since March 2021, analysts said.
“Much will depend on the length, breadth, and depth of a recession should one occur, and if the Fed will continue to raise rates through a recession,” the S&P analysts wrote on Monday. “The current pace of widening yields in secondary markets would continue, while consumption would contract, forcing businesses to dig into their cash holdings to ride out a deeper recession.”…