Fall in EU firms’ debt issuance fuels recession fears

Companies in the EU sharply reduced the amount of money they raised on debt markets last year, an industry report said on Wednesday, in a sign the bloc could be heading toward a recession as firms hold off investment. The EU economy has traditionally being over-exposed to bank loans, making it more vulnerable to banking crises than the US, where companies are more used to tapping markets for funding via equity and bond issues. But, despite the EU’s efforts to reduce the reliance on banks, European firms continue to largely shun public markets, a report from the Association for Financial Markets in Europe (AFME), a finance trade body, showed.

Last year, market finance accounted for 12 percent of EU companies’ funding, down from 14 percent in 2017, a disappointing outcome for the European Commission, the EU’s executive, which in 2015 launched plans for a capital market union meant to diversify firms’ financing. The drop was caused by a 16 fall fall in corporate bond issuance and a 5 percent cut in equity issuance, AFME said, noting the drop in its market finance indicator was the largest since it started compiling it in 2012, just after the euro zone bond crisis. “Negative changes to the indicator of this magnitude have taken place in periods associated with economic crisis and instability,” the report said, estimating this could result in a decline of 0.2 percentage points in EU growth this year.

The 28-country EU and the smaller 19-nation euro zone both saw their growth slowing to 0.2 percent in the second quarter of this year, while industry data and confidence indicators point to a possible further deterioration this quarter.