Global debt has reached an all-time high of $307 trillion during the second quarter of this year, according to a report by the Institute of International Finance (IIF). This surge in debt comes despite increasing interest rates limiting bank credit. The primary drivers of this increase are countries like the United States and Japan.
The IIF, a financial services trade group, noted that global debt denominated in US dollars expanded by $10 trillion in the first half of 2023 and has risen by a staggering $100 trillion over the past decade. This increase has caused the global debt-to-GDP ratio to rise for the second consecutive quarter, reaching 336%. Prior to 2023, this ratio had been declining for seven consecutive quarters.
The report attributes the rise in the debt ratio to slower economic growth and a deceleration in price inflation. It points out that the sharp decline in the debt ratio over the past two years was primarily due to the sudden surge in inflation. While wage and price pressures are moderating, albeit not reaching their targets, the IIF anticipates that the debt-to-output ratio could surpass 337% by the end of this year.
Interestingly, more than 80% of the recent debt buildup came from developed nations, with the United States, Japan, Britain, and France experiencing the most significant increases. Among emerging markets, the largest economies, such as China, India, and Brazil, also witnessed substantial rises in debt.
The IIF warns that as interest rates climb and debt levels continue to increase, government interest expenses will also rise, potentially leading to higher domestic debt strains in the future.
The global surge in debt highlights the challenges faced by economies worldwide as they grapple with the implications of increased borrowing and higher interest rates.
