April 13, 2024
World Economy

Global debt surges to record high as borrowing costs bite


The pain will grow the longer interest rates are kept high, although the economy overall has handled the impact remarkably well, the IIF said in its Global Debt Monitor.

It said: “Despite growth still below potential, and rising interest expenses, the global economy is proving resilient to volatility in borrowing costs.”

Financial markets currently expect central banks to start cutting interest rates again as inflation has subsided. 

But if prices rise again – “regardless of the drivers – whether an escalation in trade tensions, a boost to growth from the adoption of AI technologies, growing concerns over budget discipline, higher energy prices amid accelerating clean energy transition” – the IIF fears the result would be sustained high interest rates, “negatively impacting the outlook for global debt markets through higher borrowing costs.”

It is not the only risk. The IIF said: “Deepening geoeconomic fragmentation, geopolitical conflicts and rising trade protectionism may lead to more frequent and abrupt changes in global risk sentiment. Any escalation of these risks could exacerbate debt vulnerabilities.”

Surging inflation and a degree of economic growth has eaten away at the size of the debt pile relative to GDP. As a result debt fell to the equivalent of just under 330pc of global GDP, down from its 2021 peak of more than 360pc.

Although debt to GDP ratios fell globally, this was driven by rich countries even as the debt burden rose in emerging market economies, led by nations including China, India, Russia and Argentina.



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