World racks up $300trn in debt, but debt-to-GDP ratio down on economic rebound
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A report by the Institute of International Finance, IIF, has revealed that global debt hit a new high of almost $300 trillion in the second quarter of 2021, while the debt-to-GDP ratio fell for the first time since the start of the pandemic as economic growth rebounded. The institute said the debt levels comprise of government, household and corporate as well as bank debts.
Emre Tiftik, IIF’s director of sustainability research, revealed that the debt level rose $4.8 trillion to $296 trillion at the end of June, after a slim decline in the first quarter, to stand $36 trillion above pre-pandemic levels. According to him, the global debt levels may rise to over $300 trillion if the borrowing continues at this pace.
The IIF revealed that the rise in debt levels was the sharpest among emerging markets, with total debt rising $3.5 trillion in the second quarter from the preceding three months to reach almost $92 trillion.
On a global level, it noted that household debt rose by $1.5 trillion in the first six months of this year to $55 trillion. The institute further stated that almost a third of the countries in its study saw an increase in household debt in the first half.
“The rise in household debt has been in line with rising house prices in almost every major economy in the world. Total sustainable debt issuance meanwhile has surpassed $800 billion year to date, with global issuance projected to reach $1.2 trillion in 2021,” revealed the research director.
The report further revealed that debt level in relation to GDP of the 61 countries it monitored, 51 recorded a decline in debt-to-GDP levels, mostly on the back of a strong rebound in economic activity; but it further included that in many cases, the recovery had not been strong enough to push debt ratios back below pre-pandemic levels.
In a positive sign for the debt outlook, the IIF reported a drop in the global debt-to-GDP ratio for the first time since the outbreak of the coronavirus crisis. Thus, the debt as a share of gross domestic product fell to around 353 percent in the second quarter, from a record high of 362 percent in the first three months of 2021.
According to the IIF, total debt-to-GDP ratios, excluding the financial sector, are below pre-pandemic levels in just five countries: Mexico, Argentina, Denmark, Ireland, and Lebanon. China has seen a steeper rise in its debt levels compared with other countries, while emerging-market debt, excluding China, rose to a fresh record high at $36 trillion in the second quarter, driven by a rise in government borrowing.
In the United States, debt accumulation of around $490 billion was the slowest since the start of the pandemic, although household debt increased at a record pace.
Meanwhile, the IIF reported that after a slight decline in the first quarter, debt among developed economies, especially the euro area, rose again in the second quarter.