In another gloomy outlook for the global economy, Deutsche Bank CEO Christian Sewing warned that it could take the world much longer to recover economically from Covid-19 than previously thought.
“The pre-crisis level will be difficult to reach and it will take a long time. This is not going to happen this year and not next year either,” the banker told an audience at the Handelsblatt Banking Summit in Frankfurt earlier this week.
While some parts of the economy will not operate in full, with some sectors running at 70-90 percent capacity, a bulk of companies will have to live with reduced sales for quite a long time, according to Sewing. He added that recovery will eventually happen, but “only step by step and not in all industries.”
The speech came as more and more countries have plunged into recession as the coronavirus outbreak battered their economies. Australia, which managed to escape deep contraction during the 2008 financial crisis, was one of the latest countries to be added to the list which also includes the US, the UK and major European economies.
Deutsche Bank’s boss was also not optimistic about a rebound in Europe, noting that the US might be less effective in containing the virus, but American companies are “more radical” when it comes to adapting to new realities.
European firms, on the other hand, might be tempted to wait for more government aid. This could eventually lead to the rise of “zombie” companies, Sewing warned, citing an estimate by German credit agency Creditreform that one-sixth of the country’s companies could turn into “zombies.”
“Zombie” firms are usually defined as companies whose debt servicing costs are higher than their profits, but they stay afloat due to relentless borrowing. Previously, Deutsche Bank Securities said that the number of such companies is spiking in the US, where one in five firms could be a zombie due to the coronavirus pandemic.
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