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The world’s debt when compared against its total output hit another all-time high of over 322% in the third quarter of 2019 and it is set to keep growing, the Institute of International Finance (IIF) said in a new research report.
Total worldwide debt sat close to a record $253 trillion by the end of September, boosted mainly by higher borrowing by governments and non-financial corporates. This represented an increase from $250.9 trillion at the end of the second quarter of 2019.
“Spurred by low interest rates and loose financial conditions, we estimate that total global debt will exceed $257 trillion in the first quarter of 2020, driven mainly by non-financial sector debt,” the IIF said in the report. The group is an association of financial institutions that came together in response to the debt crisis of the 1980s.
Record-low interest rates in countries around the globe have made it easier and more attractive for corporates, individuals and governments to borrow, and thus incur more debt.
Debt accumulation in China picked up again in 2019, notably in the non-financial corporate sector.
But the higher borrowing levels are, the higher the risk of a default for individuals, companies and governments in any possible stressed economic environment.
China’s debt growth picks up again
In terms of government debt, the United States and Australia hit all-time highs in the third quarter of 2019, the IIF said. The institute also noted that debt growth picked up again in China — marking a U-turn from previous periods.
“Following a marked slowdown in 2017/18 during the big push for deleveraging, debt accumulation in China picked up again in 2019, notably in the non-financial corporate sector,” the report said.
Chinese corporate and household debt have been a concern for some economists, who argue that China’s borrowing rates have risen at an unsustainable pace which could lead to financial problems for the world’s second-largest economy. Others argue that because most of China’s debt is state owned, it’s therefore manageable.
China’s household and general government debt are now at all-time highs of 55% of its GDP (gross domestic product), according to the IIF. Overall Chinese debt is close to 310% of GDP — one of the highest in emerging markets, the report said.
Chris Wyllie, chief investment officer at Connor Broadley Wealth Management, told CNBC’s “Squawk Box Europe” that China recognizes “the need to move away from this old model, but it has been the model of the last 25 years.”
“In the last six to nine months at least, there has been a swing back to let’s get the growth,” he added.