Global debt reaches record high of $307 trillion, as debt ratios are rising: IIF

The Institute of International Finance (IIF) said on September 19 that markets like the United States and Japan were driving the hike in global debt, which reached a record high of $307 trillion in the second quarter of the year despite rising interest rates restricting bank credit, Moneycontrol reported.

According to a research by the trade association for financial services, the amount of global debt in dollars increased by $10 trillion in the first half of 2023 and by $100 trillion over the previous ten years.

It claimed that the most recent increase has increased the global debt-to-GDP ratio to 336 per cent for the second consecutive quarter. The debt ratio had been decreasing up until 2023 for seven quarters.

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The research indicated that, the increase in debt ratio was caused by slower growth combined with a slowdown in price rises.

The IIF stated that “the sudden rise in inflation was the main factor behind the sharp decline in debt ratio over the past two years,” and that they anticipate the debt to output ratio to surpass 337 per cent by year's end due to wage and price pressures lessening, even if not to their targets.

With the United States, Japan, Britain, and France seeing the greatest rises, the developed world accounted for more than 80 per cent of the most recent debt accumulation. The biggest increases in developing markets were seen in the world's three biggest economies: China, India, and Brazil.

According to the analysis, China, Korea, and Thailand are mostly to blame for the fact that household debt-to-GDP in emerging markets is still higher than it was before COVID-19. However, in the first half of the year, the same ratio in mature markets fell to its lowest point in twenty years.

“Should inflationary pressures persist in mature markets, the health of household balance sheets, particularly in the U.S., would provide a cushion against further rate hikes,” Moneycontrol quoted the report.

The target rate of between 5.25 per cent and 5.5 per cent is now anticipated to stay in place until May of next year, according to the CME FedWatch tool, but markets are not currently pricing in a rate increase by the U.S. Federal Reserve in the near future.

Rates in the United States are anticipated to stay high for a considerable amount of time, which might put pressure on emerging countries as necessary investment is directed to the less-risky developed world.

At the conclusion of its meeting on Wednesday, the Federal Reserve is anticipated to hold rates steady but may hint that it is open to additional rate increases.

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