Macroscope | Huge public, corporate and household debt looks like the ‘new normal’ for the global economy – until the next crisis
- Large debts at the public and private level may not matter as long as growth continues and interest rates remain low
- That could all change should a new financial crisis creep up on the global economy, as has happened before
Debt has now hit what the Institute of International Finance (IIF) in Washington calls “mind-boggling” proportions and Unctad – the UN body dealing with trade, investment and development issues – has warned of a new debt crisis. Yet, markets remain unfazed. It seems that “all is for the best in the best of possible worlds”, to quote Professor Pangloss in Voltaire's Candide.
The debt mountain has grown hugely, not only in Asia but also in the United States and Europe, and governments have become as heavily addicted to borrowing as have corporate and household sectors (in China especially).
As Changyong Rhee, director of the Asia and Pacific Department at the IMF in Washington noted to me, “In emerging economies, debt is a problem, but if you look at how it has increased in advanced economies, that is also very large.”
Global debt surged by US$7.5 trillion in the first half of this year alone, reaching a record of US$251 trillion, according to the IIF. “With no sign of a slowdown, we expect the global debt load to exceed [US]$255 trillion in 2019 – largely driven by the US and China,” it says.
