A zombie company is a business that is only marginally profitable at present, with a grim outlook for future profitability. These companies flourish in a setting characterized by low interest rates and a financial system that continues to extend loans to unprofitable businesses.

Zombie companies generate just enough revenue to maintain operations and meet their debt obligations. They lack surplus capital for growth and are often on the brink of insolvency. Additionally, further lenient monetary policies from central banks exacerbate this "zombification" trend.

The number of zombie companies surged following the Great Financial Crisis. So, when does a company qualify as a zombie?

One key indicator is prolonged lack of profitability, particularly if the company struggles to manage its debts. Another factor is the age of the company; younger firms may require more time for their investments to yield returns. Lastly, a pessimistic outlook for future profitability is crucial. Current low profitability might stem from corporate restructuring or new investments that could eventually enhance profitability.

Although the number of zombie companies is relatively small, years of accommodating monetary policy, marked by quantitative easing (QE), high levels of debt, and historically low-interest rates in zero or negative interest rate environments, have fueled their proliferation.

While keeping these zombie companies afloat may help preserve jobs, economists argue that it represents a misallocation of resources, as it hinders growth in more successful firms and stifles job creation.