Global debt reaches new record $217 trillion

Global debt reached a new record of $217 trillion in the first quarter of this year, according to the Institute of International Finance (IIF) in its latest report. This means that the debt amounts to 327% of global GDP.

Compared to a decade ago, global debt has increased by more than $60 trillion, an increase largely driven by the United States, China and other emerging markets.

Global debt on the rise again(Source: IIF)

After the outbreak of the credit crisis, 'deleveraging' was the magic word, the reduction of debt. We are now more than eight years later and we can conclude that the opposite has actually happened. New debt became a key driver of economic growth, with China in particular catching up impressively.

Since the outbreak of the crisis, China's total debt has almost doubled, from 160% to more than 300% of the total size of the Chinese economy. Companies in particular have taken on a lot of new debt, because low interest rates made it more attractive to finance growth with bonds than with the issuance of new shares.

Especially in China, debts have risen sharply after the crisis (Source: IIF)

After the outbreak of the crisis, the recovery initially came from the emerging economies. This is no coincidence, when you consider that it is precisely in these countries that debt began to increase explosively after the 2008 crisis. The following chart shows how the bond market of emerging economies has evolved over the past two decades.

Emerging market bond market has developed at lightning speed (Source: IIF)

Are the debts becoming unsustainable?

Due to the extremely loose monetary policy of central banks, the debt bubble has increased considerably, not only in the emerging economies, but even in the oil-producing countries. Due to a surplus of production capacity on the global oil market, several oil states in the Middle East were forced to issue bonds. The Institute of International Finance expects that these countries will have to borrow much more money in the coming years to complete their budgets.

The ever-increasing debt positions of countries and companies make economies vulnerable to a rise in interest rates. Especially now that debt is at record levels, central banks want to raise interest rates again. This could have unpleasant consequences for the recovery of the economy, which is based on the availability of cheap money.