Global debt hits record high of $307 trillion

Global debt hit a record $307 trillion in the second quarter of 2023, the Institute of International Finance (IIF) said in a report on September 19, even as rising interest rates curbed bank lending while markets like the US and Japan drove the increase.

According to the report, the total value of global debt in USD terms increased by $10,000 billion in the first half of 2023 and $100,000 billion over the past decade.

The latest increase pushed the global debt-to-GDP ratio up for the second straight quarter to 336%. The debt ratio had fallen for seven consecutive quarters before 2023.

More than 80% of the latest debt increases came from developed countries, with the US, Japan, the UK and France seeing the biggest increases. Among emerging markets, the biggest increases came from economies such as China, India and Brazil, the report said.

The report points to slowing growth and slowing inflation as the reasons for the rise in the debt-to-GDP ratio. Previously, the IIF explained, a sharp rise in inflation was the main factor behind the sharp decline in the debt ratio over the past two years.

With wage and price pressures easing, even if not as quickly as expected, the global debt-to-GDP ratio is expected to surpass 337% by year-end, the IIF said.

Household debt as a share of GDP in emerging markets remains higher than pre-Covid-19 levels, the IIF report also found. However, the ratio in developed markets fell to its lowest level in two decades in the first half of the year.

In recent months, experts and policymakers have warned that rising debt could force countries, businesses and households to tighten their belts and curb spending and investment, slowing economic growth and affecting living standards.

The good news is that consumer debt burdens appear to be under control, said Emre Tiftik, director of financial sustainability research at the IIF. If inflationary pressures persist, household balance sheets, particularly in the US, will provide a buffer against the impact of further interest rate increases by the Federal Reserve.

Markets are not pricing in any Fed rate hikes in the near future, but the target rate of 5.25%-5.5% is expected to remain in place until at least May 2024.

Minh Hoa (reported by Vietnam+, Investment Newspaper)

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