Global debt trends matter for governments, investors and citizens. The current global debt levels are eye-poppingly high, but with big differences across the segments of governments, companies, or households and this affects how different countries fare in these times of high inflation and geo-political tensions.
According to the UN, 3.3 billion people live in countries that spend more on interest payments than on education or health.
The sum of global household, corporate, and government debt is nearly $250 trillion, equivalent to 250% of world GDP. The long-term trend has been of inexorably rising debt, driven by chronically large developed market government deficits and China’s property needs.
Public debt as a proportion of global GDP has tripled in recent decades, whilst China accounts for 30% of all global company debt. But in recent years, debt levels have stabilised and have been falling sharply as a share of GDP as rising inflation boosted nominal GDP and diluted this fixed cost debt burden.
The composition of the debt matters and varies a lot by country. At an estimated over 420% of GDP, Japan debt levels seem off-the-charts, but are focused on the government, and supported by an under-leveraged consumer and low interest rate. By contrast, China’s debt which is at 308% of GDP is showing that while the government and households are under-leveraged its corporations are the world’s most indebted.
While still outside of the circle of highly indebted countries with a government debt gravitating around 50% of GDP, the forecast is that the national debt in Romania will continuously increase between 2023 and 2028 by 122.1 billion U.S. dollars (+70.44%). After the tenth consecutive increasing year, the national debt is estimated to reach 295.44 billion U.S. dollars in 2028, according to Statista.
Europe’s governments and companies are more indebted than US peers. In fact, among the top 20 countries with the highest public debt in 2022, in fourth place is Greece, Italy is 7th, Portugal, France and Spain are 17th, 18th and 19th. The US is 12th. But the US and UK consumers are among the world’s most indebted, and unsurprisingly they dominate the economy. Also, much of the emerging market’s recent relative resilience can be explained by their low debt levels, focused on local currency not US$.
For investors, a look at these debt levels is important as different countries are having very disparate sensitivity to interest rate changes. The above elements help explain Europe’s sharp growth slowdown this year versus the US’s outperformance.
It also explains China’s efforts to reign in its property sector vs emerging market’s surprise macro resilience. Also, it raises a question mark for Japan as it starts to raise interest rates for the first time in 15 years against a backdrop of world-leading sovereign debt levels.
All these elements will be at play in 2024, but the financial markets are anticipating that we are past the inflation peak and interest rates will start to come down, with the Dow Jones index reaching an all-time high on Friday at 37,305. A fall in interest rates will also allow a breather for indebted consumers, corporations and governments and help economies stay afloat.
China real estate crisis sees limited contagion on global markets
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