The number of so-called zombie firms is currently on the rise and could continue to put pressure on productivity and growth, according to a report from the Bank of International Settlements (BIS).

Zombie firms are companies that would have defaulted in a normal economic cycle but continue to function due to an ultra-low interest rate environment.

“Like the characters after which they are named, zombie firms are creatures that really should have shuffled off to the next realm some time ago. Instead of embracing death, they soldier on, usually wreaking havoc on the rest of society,” Eoin Murray, head of investment at Hermes Investment Management, told CNBC.

Read more

The prevalence of zombie firms has skyrocketed since the late 1980s, according to BIS. In its research across 14 advanced economies, the bank found that the share of zombie firms had surged, on average, from around 2 percent to 12 percent in 2016.

READ MORE: Silicon Valley's biggest ever tech bubble about to burst

Claudio Borio, head of the monetary and economic department at the BIS, said that in 1987, the probability of a zombie firm remaining a zombie in the following year was approximately 40 percent. That has gone up to 65 percent as of 2016.

Research by Deutsche Bank has attributed the persistence of the walking-dead firms to a decade of super-low interest rates. “Bottom-up data of some 3,000 companies in the FTSE All World index show that the percentage of zombie firms has more than tripled to 2.0 percent of firms in 2016 from 0.6 percent in 1996,” the bank said.

More zombies in the economy could continue to put pressure on productivity and growth, according to BIS. “A recession could be on its way,” Murray said, adding that while it will impose some pain on innocent bystanders, it could help deal with the problem of zombie firms.

For more stories on economy & finance visit RT's business section

Original Article