Europe’s Non-Financial Firms: Low Debt, Rising Bonds & Constructive Borrowing in 2026

The ING article “In Europe, more corporate debt would be a good sign” lays out a cautious yet optimistic view of European non-financial corporate (NFC) balance sheets heading into 2026. Key observations include that the corporate debt-to-GDP ratio across Europe has fallen to just under 67%, a level not seen since 2007—primarily due to nominal GDP having grown about 30% since COVID, which in real terms cushions existing debt burdens.

Bank loan growth has lately been weak: as of October 2025, outstanding bank loans to corporates rose 2.9% year-on-year, versus nominal GDP growth of about 4% in Q3. However, bond issuance is slightly outpacing bank loans, with NFC bond growth at ~3.5% compared to bank lending growth of ~2.9% over the past year—though both remain under the GDP growth pace. This shows a shift in funding composition but suggests leverage remains contained.

Debt service costs, meanwhile, are manageable. According to ING, the BIS’s interest-plus-amortisation-to-income ratio is below its 20-year average in the eurozone; ECB metrics show elevated interest payments relative to operating surplus when compared to 2022 lows, but stabilisation around the 2024 peak. Much of this comes from repriced bank loans and steady interest rates on those existing exposures. Cash holdings provide a further buffer: corporates hold nearly 23% of total debt in cash—above the pre-COVID average of ~18%. This cash reduces net leverage by more than five percentage points versus headline debt metrics.

On the public debt front, Eurostat and Banque de France data confirm that while non-financial corporate debt has declined, government debt remains high but stable: Euro-area general government gross debt stood around 87–88% of GDP in early-to-mid 2025. Within NFCs, the gross debt-to-GDP ratio for Euro area is roughly ~54%–56%, varying by country; net cash debt ratios are in the high 20s to low 30s percent of GDP, reflecting substantial offsetting assets.

Strategically, these trends point to Europe having room for an increase in corporate borrowing—particularly if investment picks up on expected easing of monetary policy, government spending, and improved clarity around energy and trade policy. Risks remain: if credit spreads widen sharply—especially from spillovers from distressed sectors globally—or if inflation and interest rate volatility spike unexpectedly. The tightness in credit standards, notably in Germany and smaller euro-area countries, and geopolitical uncertainty are also watchpoints.

Open questions include: how quickly nominal GDP growth will persist above prevailing debt growth; whether corporate CAPEX will follow the anticipated re-leveraging; how firms will manage refinancing risk on bonds with longer duration; and whether private credit growth remains marginal or becomes more meaningful for systemic risk.