Corporate balance sheet adjustment in the euro area and the United States

This section compares balance sheet adjustment in the non-financial corporate sector in the euro area and the United States. It shows that the adjustment since the crisis has been faster in the latter. Despite similar steep rises in corporate debt in pre-crisis years, US corporations have cut debt more than those in the euro area. Shifts from loans to bonds and extensions of debt maturity have also been more pronounced in the United States. Much of the difference in balance sheet consolidation can be traced back to more positive profitability trends providing US firms with the internal funds necessary to adjust balance sheets. Differences in dividend distribution strategies and in corporations' physical investment behaviours also played a role. Profitability differences reflect differences both in cyclical conditions and labour market adjustment. Comparatively slow progress in balance sheet consolidation is likely to weigh on investment recovery in the euro area.