Peter Bednarek
- 26 November 2025
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2025Details
- Abstract
- Rolling corporate recessions, defined as sequential downturns across specific sectors rather than broad-based economic contractions, offer a potential explanation for the apparent disconnect between heightened corporate vulnerabilities and still-benign bank credit metrics in the euro area. In fact, descriptive evidence suggests that vulnerabilities are increasingly emerging in staggered waves across sectors, rather than uniformly across the economy. When these sectoral vulnerability waves align, rolling recessions can become systemic. As downturns synchronise, sectoral growth correlations spike and NPL dynamics become more clustered, especially in cases where banks have concentrated exposures to specific sectors. This amplifies the risk of correlated credit losses and abrupt tightening in credit supply. Therefore, macroprudential surveillance and policy tools need to move beyond aggregate indicators towards more granular sector, region and borrower-type analysis. This should be underpinned by better data in order to identify pockets of fragility at an early stage and mitigate the non-linear systemic risks arising from rolling recessions.
- JEL Code
- E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation