Money and Markets

The world is swimming in R3,360 trillion of debt

Business Insider US
Global debt

  • Global debt is hovering near an all-time high at R3,360 trillion (that's more than three thousand trillion) the Institute of International Finance said in a new report.
  • The corporate sector has accounted for a third of global debt growth since 2016, placing the ratio of corporate debt to gross domestic product at a record high.
  • In a separate report from Bank of America Merrill Lynch distributed Tuesday, corporate leverage was found to be the primary concern among investors.

Global debt is hovering near a record at R3,360 trillion (that is more than three thousand trillion rand), the Institute of International Finance said in a new report.

The figure - although it has dropped slightly from the R3,400 trillion record high in early 2018 - underscores investors' heightened concerns about ballooning debt at a late phase in the global economic cycle.

Put another way, global debt is now more than three times the size of the world economy. The level of debt around the world has topped 318% of global gross domestic product, just below the all-time high of 320% in mid-2016. These elevated levels come despite a "cyclical pickup in global growth" over the last two years, the IIF said.

"From a broader perspective, higher levels of debt are typically related with higher levels of systematic vulnerabilities and reduce sovereigns and corporates capacity to absorb shocks during times of financial stress," Emre Tiftik, deputy director of global policy initiatives at the IIF, told Business Insider.

Exactly what kind of debt is growing - in which currencies it's denominated, when it matures, and which sectors it comes from - is important to consider, Tiftik noted.

"For example, increased reliance on short-term debt and foreign-currency debt leaves sovereigns and firms exposed to sudden shifts in global risk sentiment and could generate the most contagion regardless of the nature of the shock."

More granularly, corporate debt has accounted for a third of the rise in total global debt since 2016, the IIF said, placing the ratio of corporate debt to GDP at a record high. The corporate sector, ex-financials, and governments around the world have together accounted for over three-fourths of global debt growth since the financial crisis.

"While the surge in corporate debt was concentrated in emerging markets, government debt rose faster in mature markets," Tiftik wrote in the report.

Total global debt.
Institute of International Finance

In a separate report released Tuesday, Bank of America Merrill Lynch found corporate leverage is the top concern among investors who, collectively, manage R8 trillion in assets.

The bank's investment strategists described fund managers' concerns over corporate debt as "extremely elevated." Household debt is another closely monitored measure of economic health, and the IIF specifically highlighted that measure in emerging markets.

Household debt in those markets including China, India, Mexico, and Korea, topped R165 trillion in the third-quarter of 2018. The IIF described the growth in emerging-market household debt as "rapid."

Several more mature markets including France, Belgium, and Finland, have also seen significant growth in household debt, the report said.

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