The Institute of International Finance estimated that in the first half of 2023, the total amount of global debt reached an all-time high of $307 trillion.
The ratio of global debt to GDP has started to rise again during this time.
According to the Institute of International Finance, global debt increased by roughly $10 trillion in the first half of this year, reaching an all-time high of $307 trillion.
About 80% of the additional debt came from developed markets, with the US, Japan, the UK, and France providing the greatest portions. China, India, and Brazil were the countries with the most debt among developing markets.
Domestic debt pressures “are set to increase as higher rates and higher debt levels push government interest expenses higher,” the research stated. “However, the international financial architecture is not sufficiently prepared to address unaffordable levels of domestic debt.”
This represents an increase of $100 trillion from ten years ago, with growing debt becoming a greater worry as it continues to rise relative to GDP.
Global debt-to-GDP started to rise again in the first half of 2023, reversing a trend that had been declining since 2021. By the end of this year, the IIF predicts that the ratio will reach 337%.
The unexpected increase in inflation made it simpler for governments to pay off existing liabilities after the debt ratio reached its peak at nearly 360% two years ago. But as the IIF noted, governments and financial corporations are now driving the increase in debt to GDP.
That’s particularly true in the US, where the federal deficit is anticipated to reach $2 trillion by the end of this fiscal year. Leading critics have expressed alarm over the growth in excessive spending, with some speculating that it may result in even higher interest rates.
The household debt ratio in the US, which fell to its lowest level in two decades in the first half of the year, may provide some relief from the possibility of tighter monetary policy.
This is due to the slowdown in lending to families and non-financial firms caused by inflation, higher borrowing rates, and stricter banking regulations.
The strength of family balance sheets, notably in the US, would act as a buffer against future rate hikes should inflationary pressures persist in developed countries, according to the IIF.