Global Debt Surges to Record Levels, Continuing Fraught Upward Trend

RIO DE JANEIRO, BRAZIL – The international debt steeple continues to grow – with no end in sight for the time being. As data from the Institute of International Finance (IIF) show, global debt increased to a total of US$250.9 trillion in the first half of 2019.

This is a record figure and represents 320 percent of the world’s gross domestic product (GDP). By the same time last year, it had been US$243.6 trillion. The ever-increasing debt threatens to hamper economic growth. This could also have negative consequences for investors.

Currently, however, investors do not seem to attach much significance to the risks of this development. Ultimately, the leading stock market indices have recently reached record levels on many stock markets.

Continuing trend

The IIF, a worldwide association of financial institutions, does not expect the trend towards increasing debt to subside for the time being. Driven by the USA and China, global debt is expected to grow to US$255 trillion by the end of the year, according to the report.

Together, the two major powers account for approximately 60 percent of the recent increase.

Another striking feature was the continuing rise in debt of the emerging markets. This too reached a record high of US$71.4 trillion. This figure represents 220 percent of these countries’ total GDP.

Remarkably, debt has increased in all key areas worldwide compared to the previous year. For countries, it has increased from US$2.8 trillion to US$68.4 trillion, the highest percentage increase among the various sectors.

Private household debt grew from US$1.6 trillion to US$47.2 trillion, while in the financial sector it increased from US$0.5 trillion to US$61 trillion. For non-financial companies, debt grew significantly faster than in the financial sector, from US$2.3 trillion to US$74.2 trillion.

Growing bond market

The longer-term trend is also not very encouraging. Global debt has increased by more than US$70 trillion over the past decade. This was mainly due to countries and companies outside the financial sector, which each increased their debt by approximately US$27 trillion.

While government debt in industrialized countries grew sharply during this period, companies outside the financial sector particularly in emerging markets, increased their debt. This tripled over the same period to more than US$30 trillion.

A less glorious role was played by state-owned companies. According to the study, they now account for more than half of corporate debt in emerging markets.

This development was coupled with strong growth in the capital markets. The volume of bonds issued worldwide rose from US$87 trillion in 2009 to more than US$115 trillion in mid-2019.

Noteworthy here is that the share of government bonds in this volume grew by seven percentage points to 47 percent during this period.

However, the share of issuers from the financial sector in the total volume of bonds declined by ten percentage points to 40 percent.