Global debt levels rose to $307 trillion in the first three quarters

The total global debt of corporations, households, governments and the financial sector grew to $307 trillion at the end of October, as calculated by the Institute of International Finance. Since the beginning of the year, the debt burden has increased by $9.5 trillion, unchanged in relation to GDP, while the dynamics of debt in developed and developing countries differed: while in the former, high rates limited the private sector’s interest in borrowing, in the latter, the volume of borrowing continued to grow – this the trend affected both Russia and China.

The level of global debt in the first three quarters of this year increased by $9.5 trillion, to $307 trillion, a third of this debt is in developing countries, according to data from the Washington-based Institute of International Finance. Over five years, the burden increased by $60 trillion, two-thirds of the increase occurred in developed countries (primarily the USA, Japan, France and the UK), while the public sector debt burden grew the fastest. Among developing countries, the burden increased most significantly in China, India, Brazil and Mexico.

Compared to the beginning of the year, in relation to GDP, the level of debt remained at the same level – 335%, but if in developing countries this figure exceeded 255% (plus 32 percentage points over five years), then in developed markets it, on the contrary, decreased – in including due to weaker growth in lending to the corporate sector and households (exceptions to this trend were, in particular, France and Japan). Companies’ interest in borrowing is at its lowest level in several years, and the number of bankruptcies, on the contrary, is growing, the IIF notes. The authors of the review also show a decline in the volume of cross-country capital flows: last year, the volume of cross-border bank lending and the share of portfolio investments in equities fell sharply, while the volumes of foreign direct investment and portfolio investments in debt instruments fell less significantly.

Let us remember that in both the US and Europe, rates are at multi-year highs – this increases the cost of servicing borrowings from the non-financial sector (households and corporations). The Fed has not yet given a signal to stop tightening its own policy (currently the rate is in the range of 5.25–5.5%), although the markets do not expect a further rate increase. In the euro area, the European Commission, in its updated macro forecast, pointed to a contraction in lending volumes against the backdrop of higher rates – according to the EC forecast, annual GDP growth in the euro area countries in 2023 could be 0.6%.

In China, the share of debt servicing costs is increasing due to the accumulated high burden, slowing growth and problems in the real estate market. Since the beginning of the year, the debt of the corporate sector has increased from 158.3% of GDP to 166.9% of GDP, and government debt – from 75.9% to 83%. In Russia, over the year, the burden of households increased from 19.8% to 23.3%, the corporate sector – from 68.2% to 81.6%, the government – from 20.1% to 23%, the financial sector – from 6.8 % to 9.8%.

The IIF also fears that next year, due to a shift towards populism amid elections (they will be held in 50 countries), the fiscal burden and the volume of government borrowing in India, South Africa, Pakistan and the United States may increase. An increase in the share of expenses for servicing public debt has already been observed in Egypt, India, Malaysia, Pakistan, South Africa, Turkey and the USA. Attracting borrowed funds into climate projects, on the contrary, may decline – for bonds related to financing sustainable development, this year there has been a more than two-fold decrease in placement volumes, the issuance of “green” bonds has remained almost unchanged. In general, the volume of debt burden associated with the implementation of ESG principles continues to grow and is approaching $6 trillion, with the bulk of placements occurring in the non-financial sector.

Tatiana Edovina