Global debt rises to record $ 250 trillion in first half
Global debt hit a record over $ 250 trillion in the first half of this year, driven by increased borrowing from the US and China.
A report released by the International Institute of Finance (IIF) on Thursday found global debt increased by $ 7.5 trillion in the first six months of 2019. The total reached $ 250.9 trillion at the end of this period and will exceed $ 255 trillion by the end of 2019.
«China and the United States accounted for over 60% of the increase. Likewise, EM debt also hit a new record of $ 71.4 trillion (220% of GDP). We expect global debt to surpass $ 255 trillion this year with little signs of slowing debt accumulation.», – says IIF report.
The rise in debt around the world is a major concern for investors, and a number of economists have also called it the next tipping point. Record low interest rates make it very easy for corporations and states to borrow more and more money.
«However, with fewer opportunities for further monetary easing in many parts of the world, in countries with high levels of public debt (Italy, Lebanon), as well as in countries where public debt is growing rapidly (Argentina, Brazil, South Africa and Greece) – it may be difficult to turn to budget incentives», – says IIF report.
The International Monetary Fund (IMF) warned last month of high levels of risky corporate debt, exacerbated by persistently low interest rates from central banks. The IMF pointed out that nearly 40%, or about $ 19 trillion, of corporate debt in major economies such as the United States, China, Japan, Germany, Britain, France, Italy and Spain is at risk of default in the event of another global economic crisis or long recession.
However, central banks don’t seem to be very concerned about rising debt. On Thursday, Federal Reserve Chairman Jerome Powell said he saw no signs of looming bubbles or the immediate danger of a trillion dollar deficit..
«If you look at today’s economy, there is nothing really prosperous right now that could go bankrupt, ”Powell said in a report to the House Budget Committee. – In other words, there is a fairly stable picture».
However, the report from IIF paints a different picture. It says global public debt will surpass $ 70 trillion in 2019, up from $ 65.7 trillion in 2018, driven by rising US federal debt..
«The large growth in global debt over the past decade – over $ 70 trillion – has been driven mainly by the public and non-financial corporate sectors (each of which has grown by about $ 27 trillion). For the leading markets, growth was mainly driven by government debt (from $ 17 trillion to over $ 52 trillion). However, for emerging markets, most of the growth comes from non-financial corporate debt ($ 20 trillion to over $ 30 trillion)».
The IIF cites deepening global bond markets as a reason for rising debt levels. Global bond markets grew from $ 87 trillion in 2009 to over $ 115 trillion in mid-2019. The growth was mainly seen in the government bond market, which now accounts for 47% of the global bond markets, up from 40% in 2009.
«The bond universe has grown fastest in emerging markets: it has grown more than $ 17 trillion since 2009 to nearly $ 28 trillion», – the report says.
The global government bond market, especially so-called safe-haven assets like US Treasuries, has been in demand recently as investors rush into safe assets amid uncertainty over Brexit, a slowdown in global economic growth and a request for impeachment from US President Donald Trump in USA.