The Strategist

Global debt burden is now triple the global GDP

04/06/2017 - 14:09

Volume of global debt burden (including corporate sector, households, public sector) for 2016 grew by $ 7.6 trillion - up to $ 215 trillion, or 325% of GDP. This is $ 70 trillion more than ten years ago, says Washington Institute of International Finance (IIF). The problem of refinancing debts isn’t so acute now (including risks associated with strengthening dollar). Nevertheless, IIF notes that obligations for $ 1.1 trillion should be refinanced in 2017.

Bryan Brenneman via flickr
Bryan Brenneman via flickr
The debt burden of developed countries is still higher than that of developing countries. Now, it numbers about $ 160 trillion, or 390% of their total GDP. The increase amounted to $ 32 trillion for ten years. It is explained mainly by growing public debt (70% to 115% of GDP). It has doubled In the US and the UK since 2006, and rose by 50% in Japan and the euro area. Households and the financial sector have significantly reduced their liabilities due to the 2008-2009 crisis (80% to 70% of GDP and 130% to 115% of GDP, respectively). The burden remained relatively stable in the non-financial sector.

In developing countries, on the contrary, the load was mainly growing due to liabilities of non-financial corporations. They increased from 68% of GDP in 2006 to 100% of GDP in 2016 (growth slowed in recent quarters). The debts of companies in China, Turkey, Chile and Saudi Arabia grew higher than that of others. Total debt has risen since 2006 by $ 39 trillion, to $ 55.9 trillion (215% of GDP), mainly in national currencies (185% of GDP). However, foreign currency loans have more than doubled - up to $ 7.2 trillion (30% of GDP). This was facilitated by inflow of funds to emerging markets amid low rates in the US, Japan and the EU. The current indicator is slightly below the peak (the second quarter of 2014), but the decline was almost entirely ensured by Chinese companies that reduced their liabilities in foreign currency (this was one of the reasons for the outflow of capital from the country). In Latin American countries, as well as in Turkey and South Africa, the burden in foreign currency, on the contrary, has been growing in recent years.

The Organization for Economic Cooperation and Development in early March confirmed forecasts of the world economy growth for 2017-2018 after an increase of 3% in 2016. Assessment of the world GDP growth in 2017 is kept at the level of 3.3%, the organization's report says. 

The OECD notes weakness of investment and foreign trade, calling protectionism the main threat to the forecasted figures. At the same time, the organization expects a modest increase in the world economy’s growth rate due to a more active use of fiscal policy measures. The OECD also indicates a high level of debt burden in China among the risks to the world economy.

Strong incentives of the Bank of England made the OECD improve forecasts for the British economy in 2017f the second consecutive time. Assessment of the country's GDP growth this year has been revised from 1.2% to 1.6%. In 2018, the experts expect a weakening of up to 1% as increasing inflation will constrain consumer spending, and companies will not enlarge capital investment due to uncertainty associated with the UK's exit from the European Union (Brexit).

OECD expects that the economic policy of the elected US President, Donald Trump, including extensive investments in infrastructure, will increase the US GDP from 1.6% last year to 2.4% in 2017 and 2,8% in 2018 (corresponds to the previous forecast). In the euro area, GDP is expected to grow by 1.6% in both the current and next years.

Chinese economy, according to the OECD, will slow the recovery from 6.7% in 2016 to 6.5% in 2017 and 6.3% in 2018. On the contrary, growth is expected to accelerate in India, from 7% to 7.3% and 7.7%, respectively (every fiscal year starts on April 1 of the corresponding calendar year).

OECD experts are predicting zero GDP growth to Brazil this year after last year's recession and strengthening to 1.5% in 2018.


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