China, US push global debt towards record US$255 trillion as trade war continues to impact global economy
- The two nations contributed over 60 per cent of the US$7.5 trillion increase in global debt over the first half of 2019, said the Institute of International Finance
- The overall debt load stood at over US$250 trillion at the end of June, equivalent to 320 per cent of global gross domestic product
China and the United States have led the increase of global debt that could hit a record US$255 trillion at the end of 2019, imposing potential risks on countries with slowing growth, according to the Washington-based Institute of International Finance.
“With over 60 per cent of the world’s countries expected to see below-potential growth in 2020, accommodative central bank policy allows both corporates and sovereigns to borrow and refinance at low rates,” said Institute of International Finance analysts led by Emre Tiftik.
The International Monetary Fund estimated last month that US growth would slow to 2.1 per cent next year, down from this year’s estimate of 2.4 per cent. In the third quarter of 2019, the US economy grew 1.9 per cent, leading the US Federal Reserve to cut the benchmark interest rate for the third time this year to a range of between 1.5 per cent to 1.75 per cent.
According to the Institute of International Finance, over the past decade, global debt has ballooned by more than US$70 trillion, most of which has been driven by governments and corporations.
For developed countries, the rise of overall debt has been driven by higher government borrowing. The US government’s debt-to-GDP ratio rose to 100.5 per cent in the second quarter of 2019, which put it on a par with the level in the Eurozone. Japan had the highest government debt-to-GDP ratio of nearly 280 per cent.
Debt from emerging markets topped US$71.4 trillion in the first half of the year, reaching a record high of 220 per cent of GDP. Debt from Chile, South Korea and Argentina rose the fastest among all emerging economies, while corporate debt was the biggest driver of the debt load for emerging economies, with around half coming from state-owned enterprises.
“This trend also highlights the challenges many [emerging market] governments are likely to face in managing contingent liabilities related to [state-owned enterprise] borrowing,” the Institute of International Finance said.
The growth of China’s debt has been slower than previously as Beijing has tried to contain financial risks and stabilise growth.