A rising global debt against the sluggish economic growth
In the third quarter of 2019, global debt neared a record $253 trillion. It came at the backdrop of a not-so-inspiring recovery of the world economy. The figure increased $9 trillion from the $244 trillion debt reported in 2018 and represents 322% of global debt-to-GDP. According to a report issued by the Institute of International Finance (IIF), the debt will only worsen moving forward. In particular, it estimates the global debt will hit yet another $257 trillion debt record by the first quarter of 2020 and into the unsustainability ranges.
According to the institute, “low-interest rates and loose financial conditions” played the biggest role in spurring this greed for loans. Their report would also finger the non-financial sector of the global economy as the key driver of the debt. By the end of the first quarter, the non-financial sector debt will near $200 trillion. Total government debt is, expected to rise above $70 before the end of the year. And while debt is often necessary in spurring debt, world economy experts and analysts warn that the rising state of national loans against dwindling outputs could threaten global economic stability.
Putting this into perspective, if the current global debt was shared amongst the estimated 7.7 billion global population – each individual would shoulder $32,500.
The UN shared a special report presented by the United Nations Department of Economic and Social Affairs last year. It stated that “High indebtedness has become a prominent feature of today’s global landscape.”
And in confirming the challenges, unbalanced growth of debt in relation to economic growth poses to the world, the department added that “public and private debt levels have reached record highs in many countries. Amid signs of weakening global growth and tightening liquidity conditions, these unprecedented debt burdens pose a significant risk to financial stability.”
Economic powerhouses fueling global debt growth
The United States and Australian led the pack in governmental debt accumulation in the developed world, while China held the touch for the emerging markets.
In China, for instance, national debt hit an all-time high at 310% of the GDP in 2019. And so did the government debt that tore the 55% veil for the first time since 2009. The IIF reports considered this a swift turnaround from the “marked slowdown in 2017/18 during the big push for deleveraging.”
According to the report, debt accumulation picked up again in 2019. It was also quick to attribute to the rising demand of debt-for-growth loans in China’s non-financial corporate sector.
In the considered mature markets like the United States, Canada, Australia, debt-to-GDP ratios hit record highs. Their total debt now stands at $180 trillion – accounting for more than 383% of their combined GDP.
Despite the worrying state of global debt, central banks continue pushing interest rates to record lows. Non-financial corporate sectors increase their borrowing to spur growth while global politics and economic feuds continue shaping economy news. And they all serve to derail the recovery of the world economy, thus affirming IIF’s observation that global debt accumulation shows no sign of retreating in the foreseeable future.
