The world’s debt has surged to a record high level in the second quarter, according to the Institute of International Finance (IIF). The increase has also helped lift the global debt-to-GDP ratio which had been declining for seven quarters but is now projected to reach 337% by the end of this year.
Major Markets Behind Latest Surge in Global Debt, Slower Growth and Inflation Cause Debt Ratio Rise
Global debt has hit a record $307 trillion in Q2 of 2023, jumping by $10 trillion in the first half of the year despite rising interest rates that have been curbing bank credit, Reuters and Bloomberg informed, quoting a report by the IIF.
On Tuesday, the financial services trade group, which represents the world’s largest international banks and financial institutions, further pointed out that world debt has ballooned by a “staggering” $100 trillion over the past decade.
Debt has also resumed its increase as a share of the global gross domestic product (GDP), climbing to 336% from 334% at the end of 2022, and is expected at around 337% by the end of this year. The ratio rise, attributed to big budget deficits, slower growth and decelerating inflation, comes after almost two years of surging prices, the authors remarked and explained:
The sudden rise in inflation was the main factor behind the sharp decline in debt ratio over the past two years.
This year’s spike in global debt has been mainly caused by developed economies, which account for over 80% of the increase, with the U.S., where federal debt has exceeded $33 trillion according to a recent report, Japan, the U.K., and France having the highest rises. The largest emerging economies, China, India and Brazil in particular, have registered increases as well.
“As higher rates and higher debt levels push government interest expenses higher, domestic debt strains are set to increase,” the IIF elaborated. Interest rates in the United States are expected to remain high for a long time, limiting investment in emerging markets.
On a positive note, the IIF highlighted the lowest level of household debt as a share of advanced economies in two decades. “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,” the organization commented.
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