COVID response leads to $ 24 trillion increase in global debt (IIF)

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LONDON (Reuters) – The COVID pandemic has added $ 24 trillion to the mountain of global debt in the past year, new study finds, leaving it at a record $ 281 trillion and debt ratio global / GDP over 355%.

FILE PHOTO: Buildings are visible in the Canary Wharf business district, amid the coronavirus disease (COVID-19) outbreak, in London, Britain January 27, 2021. REUTERS / Peter Cziborra

The Institute of International Finance’s global debt watchdog estimated that government support programs accounted for half of the increase, while global businesses, banks and households respectively added 5.4 trillion, $ 3.9 trillion, and $ 2.6 trillion.

This means that finance debt as a ratio of global economic output known as gross domestic product has jumped 35 percentage points to over 355% of GDP.

This recovery is well beyond the rise observed during the global financial crisis, when 2008 and 2009 saw respective jumps of 10 percentage points and 15 percentage points in debt to GDP.

There are also few signs of stabilization in the short term.

Borrowing levels are still expected to exceed pre-COVID levels in many countries and sectors this year, supported by persistently low interest rates, although reopening economies should help on the GDP side of the equation .

“We expect global public debt to increase another $ 10 trillion this year and exceed $ 92 trillion,” the IIR report said, adding that the reduction in support could also prove to be true. even more difficult than it was after the financial crisis.

“Political and social pressures could limit governments’ efforts to reduce deficits and debt, compromising their ability to cope with future crises. “

“It could also restrict policy responses to mitigate the negative impacts of climate change and the loss of natural capital,” he added.

Chart: Global debt hits new record –

EUROPEAN DEBT

Debt increases have been particularly marked in Europe, with debt-to-GDP ratios in the non-financial sector in France, Spain and Greece increasing by around 50 percentage points.

The rapid build-up was primarily driven by governments, particularly in Greece, Spain, Britain and Canada. Switzerland was the only mature market economy in the analysis of the 61 IIR countries to record a decline in its debt ratio.

In emerging markets, China saw the largest increase in non-bank debt ratios, followed by Turkey, Korea and the United Arab Emirates. South Africa and India recorded the largest increases only in terms of public debt ratios.

“The premature withdrawal of government support measures could mean an increase in bankruptcies and a new wave of non-performing loans,” the IIR said.

However, a sustained reliance on government support could also pose “systemic risks” by encouraging so-called “zombie” companies – the weakest and most indebted companies – to take on even more debt.

Chart: Sovereign debt surge linked to COVID –

Reporting by Marc Jones; Editing by Toby Chopra

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