Global debt hits record high of $307 trillion

The Institute of International Finance (IIF) released a report on September 19 showing that global debt reached a record $307 trillion in the second quarter of 2023, although rising interest rates have limited bank credit while markets such as the US and Japan have driven the increase.

The total value of global debt in USD terms increased by $10 trillion in the first half of 2023 and $100 trillion over the past decade, the report said.

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

More than 80% of the latest debt increase 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 exceed 337% by year-end, the IIF said.

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

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

The good news is that the consumer debt burden appears to be manageable, 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 betting on the Fed raising rates 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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