In its latest Fiscal Monitor, the Fund estimates that global debt now stands at 225 per cent of GDP, up from its previous peak of 213 per cent in 2009
The International Monetary Fund has returned to its warnings about global debt, highlighting in its latest report that leverage across the planet is now higher than it was before the global financial crisis.
In its latest Fiscal Monitor, the Fund estimates that global debt now stands at $164 trillion, equivalent to 225 per cent of GDP, up from a previous peak of 213 per cent in 2009.
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“Countries with elevated government debt are vulnerable to a sudden tightening of global financing conditions, which could disrupt market access and jeopardize economic activity,” it said.
The warning makes for a change of tone from the Fund’s report a year ago. At that stage, the Fund downplayed its usual concerns about debt and urged “a greater role for fiscal policy” from governments around the world in stimulating demand.
However, a year ago global economic GDP growth looked weak. It has picked up markedly over the past 12 months. Growth in 2017 was 3.8 per cent, the fastest since 2011.
And the IMF now expects growth to strengthen this year and next to 3.9 per cent.
The Fund’s latest analysis also makes it clear that the bulk of the increase in global leverage over the past decade has been accounted for by China, which has maintained its domestic GDP growth through an explosion of commercial bank lending.
In 2007 China accounted for 4 per cent of global debt. By 2016 this share had shot up to 15 per cent.
IMF Fiscal Monitor
The country is responsible for a full three quarters of the increase in global private debt since the financial crisis.
China has been trying to wean its economy off a dependency on credit expansion and infrastructure investment to drive its GDP growth in recent years through a crackdown on the country’s vast shadow banking sector.
Recent data has pointed to some progress, although the level of private sector indebtedness remains vast and many analysts believe large tranches of commercial loans made over recent years are unlikely to be repayable.