The world has never been in this much debt

  • Global debt levels rose by $US21 trillion last year to $US237 trillion, the highest level on record.
  • 80% of the increase in global debt levels over the past five years has occurred in emerging markets.
  • With nominal GDP growing faster than debt in 2017, the global debt-to-GDP ratio fell to 318%.

Global debt levels have hit another record high.

According to the Institute of International Finance (IIF), global debt levels rose by a further $21 trillion last year (US dollars), leaving total outstanding debt at $US237 trillion, the highest level on record.

All sectors recorded an increase in debt loading from the end of 2016, lifting by $4.5 trillion, $6.5 trillion, $4.5 trillion and $5.5 trillion respectively for households, non-financial corporates, governments and the financial sector.

Source: IIF

“Still-low global rates continue to support unprecedented levels of debt accumulation,” the IIF said.

“Global levels of debt across all sectors rose by $21 trillion last year accounting for more than 80% of the total $25 trillion increase since 2012.”

As seen in the chart below from the IIF, the vast majority of that $25 trillion increase over the past five years occurred in emerging markets, swelling from $42 trillion to $63 trillion.

Source: IIF

In contrast, total debt in mature markets rose by a smaller $4 trillion over the same period to $174 trillion.

However, while overall debt levels increased sharply last year, it was actually slower than the increase recorded in nominal GDP, seeing the global debt-to-GDP ratio fall to 318%.

“With world GDP growth running above potential, the debt-to-GDP ratio continues to decline,” the IIF said.

“With global financing conditions still relatively benign, the risks of such a rapid increase in the debt burden remain largely under the radar.”

Over the past past five years, the debt-to-GDP ratio for mature markets fell from 387% in 2012 to 382% in 2017, partially offsetting an increase in the ratio for emerging markets which surged to 210% from 171% over the same period.

The IIF said Argentina, Nigeria, Turkey and China recorded the largest buildup in debt ratios over the year, the latter fuelled by ongoing growth in indebtedness of households and the nation’s finance sector.

“While China‚Äôs total debt growth slowed notably in 2017 with a drop in the non-financial corporate debt-to-GDP ratio largely offset by rising household and financial sector debt,” the group said.

And while most emerging market debt continues to be issued in local currencies, the IIF said that foreign currency denominated debt issued in these nations swelled by $800 billion last year to a record high of $8.3 trillion.

This was despite higher global interest rates, and the prospect of further increases to come.

“Reliance on FX debt leaves Turkey, Hungary, Poland and Argentina particularly exposed to swings in global risk appetite,” the IIF warned.

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