A massive accumulation of debt in China and the United States helped fuel the rise in total global debt to a record $250.9 trillion in the first half of 2019, a jump of $7.5 trillion year-on-year. Global debt will exceed $255 trillion by the end of 2019.
Global government debt will exceed $70 trillion in 2019 compared to $65.7 trillion in 2018, according to data from the Institute of International Finance, Inc. (IIF), a global association of financial institutions supporting the financial industry in the prudent management of risks. IIF said this jump was caused a surge in U.S. federal debt. This debt stands at $23.1 trillion as of today.
At the end of 2018, U.S. debt held by the public accounted for 76.4% of U.S. GDP. About 29% of U.S. debt held by the public is owned by foreigners.
"China and the U.S. accounted for over 60% of the increase," said the IIF report. "Similarly, EM (emerging market) debt also hit a new record of $71.4 trillion (220% of GDP). With few signs of a slowdown in the pace of debt accumulation, we estimate that global debt will surpass $255 trillion this year."
Rising debt across the world remains a massive headache for investors. Some economists also see it as a trigger for economic recession and a major contributor to the global economic slowdown currently being experienced. A major factor in rising debt levels is record-low interest rates that make it very easy for companies and countries to borrow more money.
"However, with diminishing scope for further monetary easing in many parts of the world, countries with high levels of government debt (Italy, Lebanon) -- as well as those where government debt is growing rapidly (Argentina, Brazil, South Africa, and Greece) -- may find it harder to turn to fiscal stimulus," said the IIF report.
Earlier, the International Monetary Fund (IMF) renewed its warnings about high levels of risky corporate debt being worsened by persistently low-interest rates. In October, the IMF warned that 40%, or around $19 trillion, of the corporate debt in major economies such as the U.S., China, Japan, Germany, Britain, France, Italy, and Spain were at risk of default in the event of another global economic downturn.
IIF said global government debt will move past $70 trillion in 2019, as against $65.7 trillion in 2018, driven higher by the massive jump in U.S. federal debt.
"The big increase in global debt over the past decade -- over $70 trillion -- has been driven mainly by governments and the non-financial corporate sector (each up by some $27 trillion)" said IIF. "For mature markets, the rise has mainly been in general government debt (up to $17 trillion to over $52 trillion). However, for emerging markets, the bulk of the rise has been in non-financial corporate debt (up to $20 trillion to over $30 trillion)."
The IIF cites the deepening of global bond markets as the reason for the rise in debt levels. The global bond markets rose from $87 trillion in 2009 to more than $115 trillion in mid-2019. Growth mostly took place in the government bond market that now comprises 47% of global bond markets compared to 40% in 2009.
"The bond universe has grown most rapidly in emerging markets, swelling by over $17 trillion to near $28 trillion since 2009," noted IIF.
