By Mark McSherry
Global debt stock grew by $8.3 trillion to a near-record $305 trillion in the first quarter of 2023, according to the latest Global Debt Monitor from the Washington-based Institute of International Finance (IIF).
The rebound in debt stock was primarily driven by non-financial corporates and the government sector.
The report said global debt is now $45 trillion higher than its pre-pandemic level and “is expected to continue increasing rapidly.”
The combination of high debt levels and rising interest rates has pushed up debt service costs, prompting concerns about leverage in the financial system, the report said.
The total debt of emerging markets hit a new record high of over $100 trillion, or 250% of GDP — up from $75 trillion in 2019.
The report warned that with financial conditions at their most restrictive levels since the 2008-09 financial crisis, a credit crunch would prompt higher default rates and result in more “zombie firms” — already approaching an estimated 14% of US-listed firms.
The monitor said that recent banking sector turmoil could prompt further expansion of the fast-growing private debt markets, now over $2 trillion.
“As central banks respond to fragile market sentiment by slowing the pace of rate hikes, the global debt burden surged by over $8.3 trillion in Q1 2023,” said the report.
“This marked a second consecutive quarterly increase, following two quarters of sharp decline during last year’s rapid monetary policy tightening.
“The rebound was primarily driven by non-financial corporates and the government sector.
“At close to $305 trillion, global debt is now $45 trillion higher than its pre-pandemic level and is expected to continue increasing rapidly …
“Despite concerns about a potential credit crunch following the recent turmoil in the banking sectors of the U.S. and Switzerland, government borrowing needs remain elevated …
“While global debt/GDP has stabilized near 335% of GDP, nearly 75% of our EM (emerging markets) universe experienced a rise in debt levels (in USD terms) during the first quarter of 2023.
“The increase was sharper in mature markets, driven by Japan, the U.S., France, and the UK.
“Among emerging markets, the biggest increases were seen in China, Mexico, Brazil, India, and Türkiye, propelling total EM (emerging markets) debt to all-time high of over $100 trillion – up from around $75 trillion in 2019.”