CHART: The World Bank warns of the consequences of a global borrowing boom

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The World Bank has warned of the potential for bad bank loans to quadruple as it downgrades its 2016 global growth forecast to 2.4% from the 2.9% projected in January.

The reforecast is due to sluggish growth in advanced economies, what the bank calls “stubbornly” low commodity prices and weak global trade.

The bank is forecasting 6.7% for China after 6.9% last year.

“Prospects for major advanced economies have deteriorated, amid weak global trade and manufacturing activity,” the World Bank says in its latest update of its Global Economic Prospects report.

“Growth is now generally expected to level off in 2016, rather than strengthen, despite the positive effects on real incomes from lower oil prices and improving labor market conditions.”

Here’s how the bank sees growth:

Source: World Bank

Part of the problem is that record low interest rates limit the room for additional monetary policy moves.

And a significant increase in debt, fueled by low interest rates and, more recently, rising financing needs, raises potential risks.

“As advanced economies struggle to gain traction, most economies in South and East Asia are growing solidly, as are commodity-importing emerging economies around the world,” says World Bank chief economist Kaushik Basu.

“However, one development that bears caution is the rapid rise of private debt in several emerging and developing economies. In the wake of a borrowing boom, it is not uncommon to find non-performing bank loans, as a share of gross loans, to quadruple.”

This chart shows the rise of debt as interest rates have fallen:

Source: World Bank

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