World’s debt now over three times greater than economic output
Global debt levels have surged to a record $217 trillion, driven by a $3 trillion borrowing spree in the developing world, the Institute of International Finance said, warning of risks to emerging markets from short-term debt repayments.
The IIF, one of the most authoritative trackers of capital flows, said in a note late on Tuesday that global debt amounted to 327% of the world’s annual economic output (GDP) by the first quarter of 2017 and the rise was driven principally by emerging market borrowing.
While advanced economies continued to deleverage, cutting total public and private debt by over $2 trillion in the past year, the report found total debt in developing countries had risen by $3 trillion to $56 trillion.
This amounted to 218% of their combined GDP, five percentage points above the first 2016 quarter.
China accounted for $2 trillion of this rise, with its debt now at almost $33 trillion, led by households but also company borrowing the IIF said.
“Rising debt may create headwinds for long-term growth and eventually pose risks for financial stability,” the report said.
“In some cases, this sharp debt build-up has already started to become a drag on sovereign credit profiles, including in countries such as China and Canada.”
High debt levels may soon come into greater focus if central banks from the U.S. Federal Reserve to the European Central Bank start unwinding some of the stimulus they have pumped into world markets. U.S. interest rates are already on the rise, potentially boosting the dollar and global borrowing costs.