The European Central Bank (ECB) needs to beware of raising interest rates too quickly as there are a significant number of "zombie firms" in Europe that have become too dependent on cheap credit, according to analysis by the Bank of America Merrill Lynch.
Barnaby Martin, head of European Credit Strategy at BofA Merrill Lynch, said businesses in Europe which have benefited from the ECB's corporate bond purchase program would struggle once the bank raises interest rates, expected sometime in 2018.
"The worst kept secret in the market is (ECB President) Mario Draghi is going to be tapering monetary policy next year and yet last week he was super, super dovish so I think that we've forgotten that monetary policy in Europe is on its way out," he told CNBC on Tuesday, adding "there's clearly political pressure for him to move away from this extraordinary era."
"So the question becomes 'can we handle a rapid rise in interest rates?'," he said.
ECB stimulus measures as part of its quantitative easing program designed to boost the European economy currently amount to 60 billion euros ($69.9 billion) a month. Some of this money goes into purchasing corporate bonds.