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

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China and the United States contributed over 60 per cent of the US$7.5 trillion increase in global debt over the first half of 2019, according to the Institute of International Finance. Photo: EPA

Published: 6:00pm, 15 Nov 2019Updated: 4:57pm, 17 Nov 2019

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.

The world’s largest two economies contributed over 60 per cent of the US$7.5 trillion increase in global debt over the first half of 2019, according to the Institute of International Finance. The overall debt load – including both financial and non-financial sectors – stood at over US$250 trillion at the end of June, equivalent to 320 per cent of global gross domestic product (GDP).

The debt-fuelled growth has added more pressure on economies around the world, many of which have experienced slowing growth this year, and can expect further slowing next year, due in large part to the impact of the US-China trade war on the global economy.

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,

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.

Chinese economic growth slowed to 6.0 per cent in the third quarter, and many economists expect it to fall below 6 per cent next year.

The People’s Bank of China has refrained from following the US Federal Reserve in making large cuts in borrowing costs, limited in part by its desire not to create a sharp rise in debt as well as not contribute to price pressures given the sharp rise in the consumer price index in recent months due to soaring costs for pork and other meat products. It cut the interest rate on its medium-term lending facility by only 5 basis points last week, the first cut in that rate since early 2016.