Joseph Schumpeter shocked many with his forthright views about the power of free markets. The early 20th century Austrian economist once told his students at Harvard University: “Gentlemen, a depression is for capitalism like a good, cold douche”. He was, of course, referring to the forces of creative destruction that drain away weak enterprises during a downturn — and the term for shower. Right now, while a depression is not on the cards, higher interest rates are straining economic activity and a wave of corporate insolvencies are expected. After a decade of rock-bottom rates a Schumpeterian cold shower may not be a bad thing.

Corporate bankruptcies in America are on course to hit their highest level since 2010. Insolvencies have already reached a post-financial crisis high in England and Wales, and have surged in the eurozone too. Allianz forecasts a rise in insolvencies in advanced economies in the next few years, as more businesses refinance on to higher rates. Indeed, in the coming five years, over $3tn of corporate debt is due for repayment in the US.

This should come as no surprise. Interest rates have risen at their fastest in four decades, the labour market is cooling and demand is set to slow. Companies are eating into their cash reserves, and could be in line for a significant step-up to their borrowing costs. Energy bills have soared, post-pandemic government support has waned, and repayments have also come due.