Tag Archives: China rising debt

Remember deleveraging?

There is a lot of interesting stuff in the latest IMF Financial Stability Report. After much research on global debts levels (as per this post in 2014 and this one in 2015) over the past few years, the graph below on G20 gross debt levels from the IMF shows how little progress has been made.

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When looked at by advanced economy, the trend in gross debt from 2006 to 2016 looks startling, particularly for government debt.

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As the IMF state, “one lesson from the global financial crisis is that excessive debt that creates debt servicing problems can lead to financial strains” and “another lesson is that gross liabilities matter”.

The question does arise as to the economic impact of these debt levels if interest rates start to rise across advanced economies?

More on Non-existent Deleveraging

McKinsey released their third report on global debt levels recently, entitled “Debt and (not much) Deleveraging”. Covering much of the same ground as the Geneva report in September (see previous post), the highlights of the report include detail behind the rise in public sector and household debt, the growth rates needed to start real deleveraging, the higher capital levels in the banking sector, the detail behind China’s rising debt, and some suggestions to live with high debt levels in the future. I would recommend the report to anybody interested in the macroeconomics.

The report is the subject of the Buttonwood piece this week where he also talks about the challenges that higher global debt brings. A recent post on changes to global demographic profiles is also relevant when thinking about servicing future public and private debt.

Below are a few of the graphics of interest from the report on the size and split of global debt, the mix between private and public debt in developed countries and the growth rate needed to start deleveraging, and the debt in China.

click to enlargeMGI Global Debt

click to enlargeMGI Advanced Economies Public vrs Private Debt

click to enlargeMGI GDP required to start deleveraging

click to enlargeMGI China Debt to GDP