Corporate debt rose markedly in 2018. We estimate that it reached 74% of GDP in Q4, +2.3pp y/y and +14pp above the 2010 level (while it stabilized elsewhere in the Eurozone). The +2.3pp increase in 2018 came after some stabilization in the debt ratio in 2017. Lower economic growth in 2018 (+1.5%, after +2.3% in 2017) was the main trigger of the new debt accumulation, since corporate margins decreased from 32% in Q4 2017 to 31.5% in Q2 2018 (our expectation is 31% in Q4 2018) and at the same time corporates continued to increase their investment for digitalization purposes. As the government took a part of the SNCF debt and decided to introduce a stimulus in 2019 (mainly tax cuts), public debt should also be on the rise. As a result, total (corporate + household + public) debt is expected at 232.5% of GDP at end-2018 (a record level, +30pp above the 2010 level). We expect corporate debt to rise further in 2019 (+2pp) and total debt to reach 235% of GDP by the end of next year. Such an increase should come along with a higher number of insolvencies (+2% forecast in 2019).
