This is a bubble that continues to inflate. According to the IMF, the debt the world has reached levels not seen since the 1950s. Depending on the institution, the global debt, both public and private, has reached in 2017 (latest data available) the record of 184.000 billion, or 225% of the global GDP. On average, the debt now exceeds the 86.000 dollars per capita, which represents more than two and a half times the average per capita income.
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The engine of this increase, almost continuous since 1950, is the private sector whose debt has tripled since this date. It was, in 2017 nearly two-thirds of the debt in the world, the rest being of the public debt. This last, which showed a steady decline until the mid-1970s, sets out again of more beautiful since, pulled up by the advanced economies and, more recently, by emerging countries and those in development, notes the IMF. “That private debt increases sharply is not a danger in and of itself, since this debt provides a support to the economy, and it is backed by collateral, which makes it manageable. On the other hand, the public debt increases in many countries, without that there is in the face of robust growth that allows at least to pay the interest. It is this that is dangerous,” alarm Marc Touati, economist and president of the firm ACDEFI.
China and the United States, champions of debt
On the podium of the biggest borrowers in the world are the United States, with a debt representing 256% of their nominal GDP. China is also one of the biggest borrowers in the world, with an overall debt of 254% of GDP, like Japan, which has debt of nearly 400% of its GDP. Europe is also gathering champions of debt, including France (289% of its GDP), the United Kingdom (247%) and Italy (246%).
“Despite their high level of indebtedness, some of these countries are able to cope with a possible crisis. This is the case of China, which has a level of public debt is low and mostly a cash reserve of more than 3000 billion dollars. Similarly, the United States, which have a major public debt, have strong growth and full employment. Germany, for its part, has released a public surplus that would allow him to restart the machine in the event of a crisis. Conversely, some countries would not be able to cope. This is the case of France, for example. Over the past ten years, it has not managed to recover margins to manoeuvre. The growth is low, public spending increases and the debt is growing,” complains the economist.
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The IMF notes that several governments, in the richest countries, have begun a process of reduction of their public debt. In these countries, this debt has seen a “downward” sound of close to 2.5% of GDP in 2017. “To achieve a similar reduction of the public debt, it is necessary to go back a decade ago, when world growth was a few percentage points higher than it is now”, note the monetary institution. But not sure it will be sufficient to reverse the sustainable trend. “The accommodative monetary policies, which had initially extinguished the fire of the crisis of 2008, have fuelled financial bubbles without restarting the economic machine in the most countries. Europe, and the euro area in particular, has not managed to bounce back,” says Marc Touati. Today, the rise of protectionism poses an additional threat to growth. “In 2018, we can expect a global debt at almost 300% of global GDP. Some countries will not be lacking. It is inevitable,” concludes the economist.
“The prospects for debt reduction remain uncertain”
To Patrice Gautry, chief economist at the BANK, “the risk for 2019 comes from the growth of public and private debt which is likely to be more rapid than the growth in value. If the debt is not in itself bad, its rate of progression and the needs of financing may weaken the global growth in 2019 and 2020 in a context of tightening of monetary policy”. A new crisis is not excluded, according to him: “his timing is dependent on the configuration of markets, the pace of the monetary tightening of the budgetary policy conducted and, finally, the confidence and visibility on the policy framework. More than a generalized crisis, we may have situations of risk in a number of countries or groups of countries (Latin America, Asia), some european countries as the criteria of debt ratios are less respected by the different States. The public debt of the u.s., France and Italy are to monitor, while the private debt in several emerging countries (China, Brazil, Turkey) is also one to watch’.
The IMF also believes that”with the tightening of financial conditions in many countries, including rising interest rates, the prospects of reducing the debt remain uncertain”. The debt, accumulated over the years, is as “a fault line of potential”.
IMF
