According to the IIF survey, global debt increased by more than US$12 trillion in the first three quarters of 2024 to a historical maximum of almost US$323 trillion. Regarding the outlook for 2025, it poses serious challenges and winds of change in the sovereign debt market.
Debt in emerging markets is rapidly approaching a new high of $105 trillion, representing 245% of GDP, up from $99 trillion in the fourth quarter of 2023.indicates the latest survey of the Institute of International Finance (IIF). While at a global level, the debt level registers an increase of more than US$12 trillion, in the first three quarters of 2024, which implies reaching a historical record of almost US$323 trillion.
Regarding the outlook, the IIF report titled “Winds of Change” by economists Emre Tiftik, Khadija Mahmood and Raymond Aycock, considers that rising trade tensions and disruptions in supply chains threaten global economic growth, “increasing the likelihood of mini-boom and bust cycles in sovereign debt markets as inflationary pressures reemerge and public finances tighten.” A no minor data for the Argentine Government which plans to return to the voluntary international debt markets as soon as possible. In this sense, IIF experts project that public debt levels will increase by more than a third by 2028, approaching US$130 trillion. Additionally, if emissions reduction targets are fully met, climate and nature-related spending for net zero emissions targets could total an additional $38 trillion.
Regarding what is happening in the last quarter of 2024, high-frequency data from the IIF indicate a slight decrease in the dollar value of global debt in the fourth quarter, driven mainly by the valuation effects of a stronger dollar against to the main trading partners. “Even so, Global debt is expected to reach $320 trillion this year, which is more than $8 trillion more than in 2023. Looking to 2025 and beyond, global debt is projected to increase, driven by public borrowing. ”they predict from the IIF.
What other data does the survey of the international banking “think tank” provide?
- In relation to the increase in global debt of US$12 trillion in the first three quarters of 2024 that marked a new record total stock, the IIF explains that the decrease in borrowing costs and the reduction in sovereign and corporate spreads supported this rapid accumulation of debt, particularly in the third quarter. “In fact, the rise in global debt during the third quarter of 2024 marked the third-largest quarterly increase on record, following sharp increases during the second and fourth quarters of 2020, when the coronavirus pandemic fueled increases of more than US$11 trillion in global debt each quarter”remember.
- In this sense, it stands out that A key factor in this recent indebtedness was the exceptional American case whose strength of GDP growth reinforced global risk sentiment and contributed to the slow but steady decline of global debt relative to GDP. According to the IIF, the global debt ratio, which stands at around 326% of GDP, is now more than 30 percentage points lower than its all-time high at the peak of the pandemic in 2020. However, not all countries have experienced substantial declines in their debt ratios.
- On the one hand, the IIF highlights examples of Greece and Türkiye which experienced notable declines in their total debt ratioswhile the other way around Hungary, Ireland, Nigeria, Sweden and Brazil recorded the largest increases during the first three quarters of 2024.
- Outside the financial sector, The rise was most pronounced in Nigeria, China and Mexico, driven largely by public borrowing, which accounted for about 40% of global debt accumulation this year. Meanwhile, Greece, Pakistan, Turkey and Japan witnessed the steepest decline in public debt-to-GDP ratios during this period.
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Courtesy: https://windykacja-info.pl/
- While the pace of global government debt accumulation between 2020 and 2024 was much slower than the previous four years, large government budget deficits suggest a rapid acceleration of borrowing over the next four years. “Global government debt levels are projected to approach $130 trillion in 2028, about 35% higher than the current level of around $95 trillion.”estimates the “think tank” of banking and international funds.
- The IIF warns that, given the chronic underestimation of actual public spending needs in official public debt statistics, debt levels could rise further, particularly when taking into account the climate-related spending needed to meet net zero emissions targets and national climate commitments. In that scenario, Global government debt levels could reach $170 trillion by 2028, with emerging markets expected to see a sharp build-up of external debt as global efforts to mobilize $1.3 trillion of annual external financing to emerging markets by 2035 will gain momentum after COP29 in Baku.
- Regarding future risks, the entity points out that although the latest IMF projections indicate a continued slowdown in potential global GDP growth in the coming years (which in part reflects a continued decline in productivity in the main G20 countries) , the rapid increase in public debt may have a relatively limited immediate impact on debt ratios, particularly at the country level. “This is because More countries are expected to experience above-trend growth through 2028, underscoring the growing importance of idiosyncratic factors in assessing country growth prospects.“Aises, which could help alleviate some of the pressure associated with rising debt levels.”
- However, Applying expansionary fiscal policies in an era of increasing geoeconomic fragmentation may be difficult, hence they warn that rising trade tensions could undermine growth prospects and trigger mini-boom and bust cycles in sovereign debt markets, particularly as inflationary pressures re-emerge amid a possible escalation of inflation. supply chain disruptions and tightening of public finances.
- On the other hand, Rising government interest expenses could exacerbate fiscal strains, making debt management increasingly difficult in a volatile environment. “With significant redemptions due in 2025 and 2026, particularly in emerging markets, rising volatility could leave some sovereigns vulnerable to sudden changes in investor sentiment, underscoring the risk of liquidity crises,” it warns.
Source: Ambito
