MW How the economy would weather private-credit defaults rising to financial crisis-like levels
By Jules Rimmer
Fears of private credit spillover into the overall economy are overblown, says Goldman Sachs
Goldman Sachs says the U.S. economy could manage rising private-credit defaults.
The private-credit sector has been attracting a lot of attention recently - most of it unwelcome. A new report from Goldman Sachs, though, reassures investors that even in the event of a default rate of 10% - comparable to that of the global financial crisis in 2008-09 - large macroeconomic spillovers are unlikely.
Its research finds a drag on GDP of only 20-50 basis points in this worst-case scenario.
A 3-4% default rate scenario would generate a drag of about 0.1% on GDP; A more extreme 10% default scenario would generate a drag of 0.2-0.5% on GDP
The note published Monday by Goldman Sachs economist Manuel Abecasis is a direct response to the recent unfavorable headlines the sector has garnered, after well-publicized problems at firms specializing in private credit including Blue Owl Capital $(OWL)$, Apollo $(APO)$ and KKR $(KKR)$. The disquiet among investors in private-credit vehicles dates back to defaults in the autumn of 2025 that led to the now infamous 'cockroaches' comment from JPMorgan Chairman and CEO Jamie Dimon.
Abecasis' research estimates that a modest increase in private credit default rates to say, 3% to 4%, which was the lower end of the range in prior credit cycles, would likely shave just 10 basis points off U.S. GDP. Abecasis is keen to emphasize that the private-credit sector is relatively small in size. It holds about $1.7 trillion in levered loans to the corporate sector, just 4% of all credit to the private, non-financial sector. Its capacity to wreak havoc in the U.S. economy then, is limited, he says.
While acknowledging the adverse newsflow recently and noting that there is limited visibility into loan performance, indicators suggest to Abecasis that, up until year-end 2025 at least, the sector has behaved broadly in line with its average since 2023.
Available indicators suggest that private credit loan performance has remained broadly in line with itsaverage since 2023, though it deteriorated a little in 2025H2
Abecasis predicts that lending by private-credit firms will probably tighten in the coming months but that bank lending to businesses has accelerated recently, corporate sector balance sheets are generally healthy and AI-related demand is still a tailwind to credit growth.
While private credit alone is unlikely to provoke a crisis, Abecasis concedes higher overall credit spreads as a result of uncertainty about the trajectory of AI capex, or a broader tightening of financial conditions stemming from the present geopolitical volatility do pose larger risks to the economy as a whole.
-Jules Rimmer
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(END) Dow Jones Newswires
March 24, 2026 05:34 ET (09:34 GMT)
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