Macroscope | A coronavirus pandemic may well be the trigger for the long-feared global debt crash

A pandemic would hit confidence, possibly prompting lenders to raise rates, recall loans or simply stop lending, just when governments and companies are neck-deep in debt and desperate to borrow more to stay on their feet

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A worker wearing a protective suit takes body temperature measurement of a man inside the Shanghai Stock Exchange building on February 28. Even before the coronavirus scare, it had already begun to look like a question of when, rather than if, a debt crisis would erupt. All that was missing was the “trigger”. Photo: Reuters

Published: 11:30am, 2 Mar 2020Updated: 11:30am, 2 Mar 2020

A looming coronavirus pandemic, an economic slowdown and a stock market slump – can things possibly get any worse? Unfortunately, yes. Not because of any one factor but because their overall impact on confidence is precisely the kind of shock that could trigger a global debt crisis.

The global debt mountain – corporate, household and government – has been growing ominously for several years and that growth is accelerating. This has largely gone unremarked except by a few commentators (including myself) who have been around long enough to recognise an approaching debt crisis.

Even before the coronavirus scare, it had already begun to look like a question of when, rather than if, such a debt crisis would erupt. All that was missing was the “trigger”. There always has to be a precipitating event for a crisis and the coronavirus could well be it.

International Monetary Fund managing director Kristalina Georgieva told the recent G20 finance ministers’ meeting in Riyadh that “high debt levels in countries and corporates could be affected by a rise in risk premia or an unanticipated tightening in financial conditions”.

She was being diplomatic, of course, but her comments could be interpreted in plain English to mean: countries and companies are up to their necks in debt and if lenders decide at this time of great uncertainty to raise lending rates or to call in loans, then we could be in trouble.

IMF managing director Kristalina Georgieva visits a historic site in Saudi Arabia after attending a meeting of G20 finance ministers and central bank governors in Riyadh, on February 22. Georgieva warned at the meeting that an unexpected tightening of financial conditions could have a huge impact on debt-laden economies. Photo: EPA-EFE

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.css-1m2rp1p{color:#34b8b5;}Macroscope | A coronavirus pandemic may well be the trigger for the long-feared global debt crash

Macroscope | A coronavirus pandemic may well be the trigger for the long-feared global debt crash