The Bank for International Settlements published a working paper examining zombie firms in 10 Asian emerging market economies using firm-bank linked data covering 2005-2021. The share of zombie firms rose from about 11% of firms in 2008 to 17% in 2021, while their shares of corporate assets and debt increased from 6% to 13% and from 9% to 20%, respectively. About 95% remained zombies from one year to the next, with weak banks sustaining distressed borrowers through loan evergreening. Zombie firms recorded weaker profitability, productivity, investment and employment growth, while crowding out healthy firms and reducing regional GDP growth and inflation by an estimated 0.2 percentage points annually. The paper also finds that these effects crossed borders through global value chains, particularly lower-priced intermediate goods, reducing advanced economy growth and inflation by about 0.4 percentage points over medium-term horizons. Cross-border bank lending was not a major transmission channel because foreign banks’ zombie exposures did not materially impair their balance sheets, indicating that bank-focused surveillance alone may miss risks transmitted through trade.
2026-09-03Bank for International Settlements
Bank for International Settlements study links rising Asian zombie firms to lower domestic and advanced economy growth and inflation
A Bank for International Settlements working paper finds that zombie firms have increased sharply across 10 Asian emerging market economies and are sustained by weak banks’ loan evergreening. Their prevalence depresses healthy firms, domestic growth and inflation, while transmitting lower growth and inflation to advanced economies mainly through intermediate-goods trade rather than cross-border banking.