According to the Institute of International Finance (IIF), total global debt – which includes government, household and corporate, and bank debt but excludes derivatives and various other exotic products – rose to a new record high of nearly $300 trillion in the second quarter, $296 trillion to be precise, and up $4.8 trillion in the quarter.
This means that in the 18 months since Covid, total debt has increased by $36 trillion, but Stephanie Kelton, a professor of Economics and Public Policy at Stony Brook University and a former Chief Economist on the U.S. Senate Budget Committee, says debt is not necessarily a bad thing.
“Deficits can help us fight a myriad of problems that plague our economy–inequality, poverty and unemployment, climate change, housing, health care, and more,” said Kelton, who has advocated government spending in the US to address social and economic problems regardless of their immediate monetary cost. “But we can’t use deficits to solve problems if we continue to think of the deficit itself as a problem.”
Emre Tiftik, IIF’s director of sustainability research, revealed that the debt level rose $4.8 trillion to $296 trillion at the end of June, after a slim decline in the first quarter, to stand $36 trillion above pre-pandemic levels.
“If the borrowing continues at this pace, we expect global debt to exceed $300 trillion,” said Tiftik.
The IIF also said that of the 61 countries it monitored, 51 recorded a decline in debt-to-GDP levels, mostly on the back of a strong rebound in economic activity.
The rise in debt levels was the sharpest among emerging markets – particularly China – with total debt rising $3.5 trillion in the second quarter from the preceding three months to reach almost $92 trillion.
The IIF revealed that the rise in debt levels was the sharpest among emerging markets, with total debt rising $3.5 trillion in the second quarter from the preceding three months to reach almost $92 trillion.
On a global level, it noted that household debt rose by $1.5 trillion in the first six months of this year to $55 trillion. The institute further stated that almost a third of the countries in its study saw an increase in household debt in the first half.
“The rise in household debt has been in line with rising house prices in almost every major economy in the world. Total sustainable debt issuance meanwhile has surpassed $800 billion year to date, with global issuance projected to reach $1.2 trillion in 2021,” revealed the research director.
The report further revealed that debt level in relation to GDP of the 61 countries it monitored, 51 recorded a decline in debt-to-GDP levels, mostly on the back of a strong rebound in economic activity; but it further included that in many cases, the recovery had not been strong enough to push debt ratios back below pre-pandemic levels.
In a positive sign for the debt outlook, the IIF reported a drop in the global debt-to-GDP ratio for the first time since the outbreak of the coronavirus crisis. Thus, the debt as a share of gross domestic product fell to around 353 percent in the second quarter, from a record high of 362 percent in the first three months of 2021.
According to the IIF, total debt-to-GDP ratios, excluding the financial sector, are below pre-pandemic levels in just five countries: Mexico, Argentina, Denmark, Ireland, and Lebanon.
China has seen a steeper rise in its debt levels compared with other countries, while emerging-market debt, excluding China, rose to a fresh record high at $36 trillion in the second quarter, driven by a rise in government borrowing.
In the United States, debt accumulation of around $490 billion was the slowest since the start of the pandemic, although household debt increased at a record pace.
Meanwhile, the IIF reported that after a slight decline in the first quarter, debt among developed economies, especially the euro area, rose again in the second quarter.