Unlock Editor’s Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
OK, it’s much harder to argue that inflation can have positive side effects today than it was a month ago. But it resulted in one of the largest reductions in world debt in history, perhaps the largest.
The Institute of International Finance releases its latest Global Debt Monitor, showing that the global debt-to-GDP ratio has fallen from its post-COVID-19 peak of 357% in 2021 to 327% by the end of the third quarter of 2024. It was shown that
This would reduce the global debt-to-GDP ratio by 30 percentage points in just four years. Sure, it only takes us back to 2019 levels, but high-leverage beggars can’t be choosers.
The main reason for this reduction is that nominal GDP is growing much faster than governments, businesses, and the public can borrow, primarily due to inflation.
While the greatest real deleveraging has been in the financial industry (which in this case includes not only bank debt but also securitized debt), both non-financial companies and governments have seen their debt-to-GDP ratio increase. It decreased by about 8 percentage points.
The IIF is naturally more focused on the absolute increase in nominal debt, which is clearly a significant amount. In absolute dollar terms, global debt rose by an additional $12 trillion this year, bringing the total to a record $322.9 trillion at the end of September.
And those who scold persistent debt cannot help but warn that the situation will only get worse.
Although the pace of global government debt accumulation from 2020 to 2024 was significantly slower than in the previous four years, large government budget deficits suggest that borrowing will accelerate rapidly over the next four years. Global government debt levels are projected to approach $130 trillion by 2028, about 35% higher than the current level of about $95 trillion.
Furthermore, given the chronic underestimation of actual government spending needs in public debt statistics, debt levels are It is likely to rise further. Under such a scenario, global government debt levels could reach $170 trillion by 2028, with the world mobilizing $1.3 trillion per year of external financing to emerging economies by 2035 after COP29. Emerging markets are expected to record sharp increases in external debt as these initiatives gain momentum. In Baku.
However, what is important is the size of the debt burden relative to the size of the economy. And in this respect, inflation has been a huge boon (even if it has turned out to be a complete nightmare for lenders).
It’s easy to forget that underinflation was actually one of the biggest problems facing the global economy after the 2008 financial crisis. Even if it’s not a popular discussion at the moment, it may eventually be again.