Global swelling of debt posing risk to recovery, says Moody’s


This was especially so in emerging markets and Southern Europe, as the third and fourth waves of the Covid-19 pandemic were swelling, domestic demand was anemic, and jobs as well as incomes had suffered sustained blows, according to Moody’s Analytics.

PETALING JAYA: The total global debt rose to a record US$24 trillion (RM99 trillion) in 2020, pushing global leverage up a staggering 34 percentage points to a new high of 366% of gross domestic product (GDP).

This was especially so in emerging markets and Southern Europe, as the third and fourth waves of the Covid-19 pandemic were swelling, domestic demand was anemic, and jobs as well as incomes had suffered sustained blows, according to Moody’s Analytics.

Though governments led the borrowing spree, it said corporate, household and financial sector debt rose as well, posing distinct risks to global recovery.

“Despite improved growth prospects in the United States and China, elevated debt burdens across the globe heighten the risks to growth and financial stability, ” it said in a note yesterday.

On global government debt, Moody’s Analytics said the debt rose by US$12.2 trillion (RM50.42 trillion) in 2020, the largest increase on record and accounting for more than half of the increase in total global debt.

“As a share of global GDP, government debt broke into triple digits, reaching a record 105% of global economic output.

“The pandemic-induced increase in leverage spans advanced and emerging markets alike and comes on the heels of rising government debt in most global regions in the five years prior to the pandemic, ” it said.

It said the Moody’s Analytics measure of fiscal space based on projections of the government’s borrowing rate, primary balance, and nominal output growth showed a broad deterioration in most countries, as debt levels surged in the wake of the pandemic.

“The sweeping rise in government debt amplifies these risks and is cause for caution in most countries across the globe, ” it said.

However, it noted that there were several economies in which high and rising debt loads merit special attention, topping the list were the US and China. Meanwhile, debt-saddled Japan saw a smaller increase in its debt burden than most other countries in the Asia-Pacific region.

The global corporate debt rose by US$5.5 trillion (RM22.73 trillion) last year, pushing the global tally of corporate debt to a record US$80.6 trillion (RM333 trillion) and causing the ratio to GDP to surpass 100% for the first time, it said.

“Though firms in Europe and Asia made some headway in reducing debt burdens in the five years prior to the pandemic, debt burdens rose in 2020 across global regions, the consequence of increased borrowing in North America, Europe and Asia, and sharp decline in output in Latin America, the Middle East and Africa, ” it said.

As for household debt, it surged US$2.5 trillion (RM10.33 trillion) in 2020, the largest increase since the mid-2000s housing boom in the US and parts of Europe.

Moody’s Analytics said the rise brought total global household debt to a record US$51 trillion (RM211 trillion), as a share of global GDP, household debt also reached a new high of 64% with supercharged property markets were the driving force in most global regions.

“In the Asia-Pacific region, Hong Kong, South Korea and Australia stand out despite some cooling in property prices in the run-up to the pandemic, as well as Vietnam, ” it said. ─ Bernama

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