Global debt surged to a staggering $307 trillion in the second quarter of 2023, marking an increase of $10 trillion within the year’s first six months, despite mounting interest rates which have put a damper on bank credit, as reported by the Institute of International Finance (IIF).
The IFF, a financial consortium representing the largest global banks and financial powerhouses, also noted that over the past decade global debt rocketed by a “staggering” $100 trillion.
Debt has kept on rising as a fraction of global gross domestic product (GDP), going from 336% at the end of 2022 to an expected 337% by the end of this year, after climbing from 334%.
The uptick in the ratio has been largely attribute to expansive budget deficits, sluggish economic growth, and decelerating inflation. It comes after nearly two years of rampant inflation. IIF Director Emre Tiftik wrote in a report:
The sudden rise in inflation was the main factor behind the sharp decline in debt ratio over the past two years, allowing many sovereigns and corporates to inflate away their local currency.
In the first half of 2023, advanced economies achieved their lowest level of household debt as a share of GDP in 20 years, the IIF stated, a positive aspect of the report. It adds that if inflationary pressures persist in these markets the “health of household balance sheets, particularly in the U.S., would provide a cushion against further rate hikes.”
These advanced economies reportedly account for over 80% of the increase in global debt, with the U.S. recently seeing its debt top the $33 trillion mark. Most large economies have notably registered debt increases, including those of BRICS nations China, India, and Brazil, for example.
Global debt has been growing even as central banks raise interest rates to rein in on inflation, with the Federal Reserve having, for example, raised rates by more than 5% over the last 18 months.
The report noted that government debt levels are “at alarming rates in many countries,” as the “global financial architecture is not adequately prepared to manage risks associated with strains in domestic debt markets.”
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