Home » Global debt breaks a new record: in 2023 it will rise to 313 trillion. Wars and geopolitical tensions can make it grow further

Global debt breaks a new record: in 2023 it will rise to 313 trillion. Wars and geopolitical tensions can make it grow further

by admin
Global debt breaks a new record: in 2023 it will rise to 313 trillion.  Wars and geopolitical tensions can make it grow further

WASHINGTON. Global debt has never been higher. In 2023 it reached an all-time high of 313 trillion dollars, with an increase compared to 2022 of just over 15 trillion. The photograph taken by the Institute of International Finance (IIF), the main global financial lobby, tells of an increasingly indebted world. The consequences of the pandemic, the war in Ukraine and the conflict between Israel and Hamas also weigh heavily. Countries’ debts are increasing, especially the United States, France and Germany, and inequalities are growing. At the same time, the risks for the financial universe are rising, which now has a total debt of almost 70 trillion dollars. Again, this is a record.

The global debt race is not slowing down. On the contrary. In 2023, the 300 trillion dollar mark will be exceeded again. This was also the case in 2021, with 303 trillion dollars due to expenses to combat the Covid-19 pandemic. Today, the two ongoing conflicts – Ukraine and the Middle East – are increasing the burden on the shoulders of governments, families, businesses and financial companies. In the first case, the level went from 83,600 billion at the end of 2022 to 89,900 billion. In the second, from 57 thousand billion to 59,300 billion. In the third, from 90 thousand billion to 94,400 billion. Finally, in the fourth, from 67,100 billion to 69,400 billion. A total growth of 15,300 billion in just twelve months.

Absolute debt increases, but its relationship with gross domestic product (GDP) decreases. And it couldn’t be otherwise, given the slowdown in economic growth in developed countries. The global debt-to-GDP ratio fell by around 2 percentage points to nearly 330% in 2023, marking the third consecutive year-on-year decline. However, the IIF notes, “the pace of moderation last year was significantly slower than in 2021-22, against a backdrop of slower economic growth and declining inflation.” The reduction in the debt-to-GDP ratio was “particularly notable in mature markets, largely driven by European countries”. Malta and Norway were the only exceptions. In stark contrast, “emerging market debt-to-GDP ratios hit a new high of 225%, with the largest increases seen in India, Argentina, China, Russia, Malaysia and South Africa.”

See also  Central bank gold fever: Turkey and China in the lead

What is certain, as also recalled by the majority of investment banks on both sides of the Atlantic, global expansion has demonstrated marked robustness. The IIF also underlines this: “Despite growth still below potential and the increase in interest expenses, the global economy is proving resistant to the volatility of financing costs.” In fact, the study explains, “the incoming economic data has exceeded expectations in the main countries, leading to a recovery in investor sentiment”. This change “was accompanied by a significant pickup in lending activity earlier this year.” And then there was the news, as recalled by analysts at the Washington think tank: “Particularly noteworthy is the increase in sovereign Eurobond issuance by emerging markets, including low-income countries which in recent years have suffered significantly due to limited access to international debt markets.” If sustained, “this optimistic sentiment should also reverse ongoing deleveraging by European governments and non-financial corporations in mature markets, both of which are now less indebted than before the pandemic.” The trajectory, however, depends on the global implications of the ongoing wars, and of the elections that will take place in 2024, one of the most important years ever for electoral cycles.

In light of this, the picture, explains the IIF, is complicated to read. The central banks’ efforts to bring inflation back under control after a dangerous two-year period have not been in vain. But what is missing is to travel the last mile unscathed, as recalled several times by Jerome Powell, number one at the Federal Reserve, and by Christine Lagarde, president of the European Central Bank (ECB). The report puts it in black and white: “If inflationary pressures were to resume, regardless of the driving factors – be it an escalation of trade tensions, a boost to growth resulting from the adoption of artificial intelligence technologies, growing concerns on fiscal discipline, rising energy prices amid an accelerating clean energy transition – this could accelerate the outflow of central bank balance sheets, which has a negative impact on the outlook for global debt markets through higher financing costs”.

See also  Kaufhof: The Aachener fashion chain apparently wants to continue operating several Galeria locations

The dynamics of debt on a global scale brings the issue of sustainability back to the center of the attention of political decision makers. Because it is one thing to manage the life of the debt, a factor that nations like Italy and France are conducting in a virtuous way, but another is the effective management of the debt with a view to a future reduction towards better shores. A scenario which, judging by the 2023 figures, is still far away.

You may also like

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Privacy & Cookies Policy