Global debt hits record $307 trillion, debt ratios climb -IIF -September 19, 2023 at 10:30 am EDT
NEW YORK, Sept 19 (Reuters) – Global debt hit a record
$307 trillion in the second quarter of the year despite rising
interest rates curbing bank credit, with markets such as the
United States and Japan driving the rise, the Institute of
International Finance (IIF) said on Tuesday.
The financial services trade group said in a report that
global debt in dollar terms had risen by $10 trillion in the
first half of 2023 and by $100 trillion over the past decade.
It said the latest increase has lifted the global
debt-to-GDP ratio for a second straight quarter to 336%. Prior
to 2023, the debt ratio had been declining for seven quarters.
Slower growth, alongside a deceleration in price increases,
were behind the debt ratio rise, the report said.
“The sudden rise in inflation was the main factor behind the
sharp decline in debt ratio over the past two years,” the IIF
said, adding that with wage and price pressures moderating, even
if not to their targets, they expect the debt to output ratio to
surpass 337% by year-end.
More than 80% of the latest debt build up had come from the
developed world with the U.S., Japan, Britain and France
registering the largest increases. Among emerging markets, the
biggest rises came from the largest economies, namely China,
India, and Brazil.
“As higher rates and higher debt levels push government
interest expenses higher, domestic debt strains are set to
increase,” the IIF said.
The report found that household debt-to-GDP in emerging
markets was still above pre-COVID-19 levels, largely due to
China, Korea and Thailand. However, the same ratio in mature
markets has dropped to its lowest level in two decades in the
first six months of the year.
“Should inflationary pressures persist in mature markets,
the health of household balance sheets, particularly in the
U.S., would provide a cushion..against further rate hikes,” it
said.
Markets are not pricing in a U.S. Federal Reserve rate hike
in the near future, but the target rate of between 5.25% and
5.5% is currently expected to remain in place until at least May
of next year, according to the CME FedWatch tool.
Rates are expected to remain high for a long period in the
United States, which could pressure emerging markets as needed
investment is funnelled to the less-risky developed world.
The Fed is expected to leave rates unchanged at the end of
its meeting on Wednesday, but could signal that it is open to
further rate hikes.
(Reporting by Rodrigo Campos, editing by Karin Strohecker and
Alexander Smith)
