Record debt and slowing growth show the global economy could be facing another crisis, the Financial Times reported Monday.
The warning from the 16th annual Geneva Report comes before the International Monetary Fund meets next week in Washington amid concern the global recovery is weakening as the United States Federal Reserve begins to raise interest rates within a year.
The report was commissioned by the International Centre for Monetary and Banking Studies and written by a panel of senior economists including three former senior central bankers.
It predicts interest rates across the world will have to stay low for a “very, very long” time to enable households, companies and governments to service their debts and avoid another crash.
A “poisonous combination” of record debt and slowing growth suggest the global economy could be heading for another crisis, the report said.
Although the burden of financial sector debt has fallen, particularly in the US, and household debts have stopped rising as a share of income in advanced economies, the report highlights the continued rapid rise of public sector debt in rich countries and private debt in emerging markets, especially China.
World debt, private and public, has risen from 160 per cent of national income in 2001 to almost 200 per cent after the crisis struck in 2009 and 215 per cent in 2013.
“Contrary to widely held beliefs, the world has not yet begun to delever and the global debt to GDP ratio is still growing, breaking new highs,” the report said.
Luigi Buttiglione, one of the report’s authors and head of global strategy at hedge fund Brevan Howard, said: “Over my career I have seen many so-called miracle economies – Italy in the 1960s, Japan, the Asian tigers, Ireland, Spain and now perhaps China – and they all ended after a build-up of debt.”
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