Date
24 October 2017
Debt as a proportion of GDP has risen in many nations, posing a threat to global financial stability, a report warns. Photo: Bloomberg
Debt as a proportion of GDP has risen in many nations, posing a threat to global financial stability, a report warns. Photo: Bloomberg

Rising global debt fuels fears of another crisis

Debt relative to gross domestic product (GDP) has risen in many nations compared to the levels prior to 2007, a situation that is prompting some experts to warn of another potential global crisis.

According to consultancy giant McKinsey & Co, global debt has increased by US$57 trillion since 2007 to almost US$200 trillion — far outpacing economic growth, Financial Times noted.

As a share of GDP, debt has risen to 286 per cent from 270 percent over the past eight years.

“Overall debt relative to gross domestic product is now higher in most nations than it was before the crisis,” McKinsey was quoted as saying in a report.

“Higher levels of debt pose questions about financial stability.”

The McKinsey report, which surveyed debt across 47 countries, shows that hopes that the financial crisis would spur widespread deleveraging to safer levels of indebtedness were misplaced, FT said. 

Overall, almost half of the increase in global debt since 2007 was in developing economies, but a third was the result of higher government debt levels in advanced economies.

China’s total debt has nearly quadrupled since 2007 to the equivalent of 282 percent of GDP. That was higher than in the US — although China is lower if financial sector debt is excluded

McKinsey warns of risks in China’s property sector, local government financing and a rapidly expanding shadow banking system.

The country’s overall debt appears manageable, but its indebtedness will restrict the nation’s ability to compensate for slower long-term growth in advanced economies.

“When there was a crisis in the west, China could lever up. Now that is not the case,” McKinsey said.

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RC

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