Global debt reached a new historical high of $307 trillion in the second quarter of this year. Despite tighter lending conditions caused by rising interest rates, the growth of debt obligations has not slowed down. The largest contributions to this came from the economies of the United States and Japan.
This is reported by Finway
Debt-to-GDP Ratio Dynamics
According to the Institute of International Finance (IIF), global debt in dollar terms increased by $10 trillion in the first half of 2023, and by $100 trillion over the past ten years. This has led to an increase in the debt-to-GDP ratio, which has risen for the second consecutive quarter, reaching 336%.
Analysts point out that the reason for this increase is a combination of slowing economic growth and declining inflation rates, causing nominal GDP to grow more slowly than debt figures.
“The debt-to-GDP ratio has effectively resumed its upward trajectory,” said Emre Tiftik, IIF’s Director of Sustainable Development Research, at a press conference.
Experts emphasize that the current increase follows seven consecutive quarters of declining debt ratios, reflecting a weakening of inflationary pressure.
Forecasts for Further Growth and Regional Differences
The IIF forecasts that by the end of the year, the debt-to-global output ratio could exceed 337%, even if wage and price growth remains moderate. Experts warn that further accumulation of debt may force governments, businesses, and households to cut spending, negatively impacting economic growth and living standards.
Over 80% of the new debt during this period is attributed to developed countries, led by the United States, Japan, the United Kingdom, and France. In emerging markets, significant increases are observed in China, India, and Brazil.
Experts note that for the first time in a long while, the debt dynamics in emerging markets appear better than in developed economies. This is due to the slower return of developed countries to pre-crisis fiscal positions after the pandemic and additional challenges related to the energy crisis caused by the war in Ukraine.
According to the report, household debt-to-GDP in emerging markets still exceeds pre-COVID levels, primarily due to China, Korea, and Thailand. Meanwhile, in mature markets, this figure has fallen to its lowest level in the past twenty years.
Despite this, experts believe that the debt burden on consumers remains manageable. If inflationary pressure persists, the financial condition of households, especially in the U.S., may serve as a buffer against further interest rate hikes by the Federal Reserve.