Moody’s Analytics: Heightened Global Debt Poses Risks To Economic Recovery

18 May 2021

Moody’s Analytics: Heightened Global Debt Poses Risks To Economic Recovery

Moody’s Analytics said total global debt increased by US$24 trillion (RM99 trillion) last year, its largest on record, bringing global leverage up by 34 percentage points to 366% of gross domestic product (GDP).

The hike in debt was especially evident in emerging markets as well as in Southern Europe where third and fourth waves of COVID-19 cases surged, domestic demand was lacklustre and jobs as well as incomes were significantly affected, reported Bernama.

While governments led the borrowing spree, Moody’s Analytics noted that debt by household, corporate and financial sector also increased, posing risks to the global recovery.

“Despite improved growth prospects in the US and China, elevated debt burdens across the globe heighten the risks to growth and financial stability,” it said in a note as quoted by Bernama.

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Moody’s Analytics revealed that global government debt grew by a record US$12.2 trillion (RM50.3 trillion) in 2020, accounting for over 50% of the hike in total global debt.

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

“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.”

The Moody’s Analytics’ measure of fiscal space based on forecasts of government’s primary balance, borrowing rate and nominal output growth indicated a broad deterioration across most countries as the pandemic resulted to increased debt levels.

“The sweeping rise in government debt amplifies these risks and is cause for concern in most countries across the globe,” said Moody’s Analytics.

However, several economies with high debt loads merit special attention, with the US and China topping the list.

It revealed that debt-saddled Japan posted a smaller hike in debt burden compared to most other countries within the Asia-Pacific region.

In 2020, global corporate debt climbed by US$5.5 trillion (RM22.7 trillion) to US$80.6 trillion (RM332.5 trillion), bringing the ratio to GDP to exceed 100% for the first time, said Moody’s Analytics.

“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.

Global household debt also increased by US$2.5 trillion (RM10.3 trillion) in 2020, the biggest increase since the US and parts of Europe witnessed a housing boom in mid-2000s.

This brought total global household debt to US$51 trillion (RM210 trillion) and the ratio to GDP at a new high of 64%, with red-hot property markets being the driving force in most regions.

“In the Asia-Pacific region, China, 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, where household debt experienced a longer rise in conjunction with rapid growth in jobs and incomes,” said Moody’s Analytics.

In Malaysia, household debt stood at US$243.5 billion (RM1.004 trillion), accounting for 75.3% of the global GDP.

“Global financial sector debt rose by US$3.9 trillion (RM16.8 trillion) in 2021, the second largest increase of the past 10 years, pushing financial debt up to 86% of global GDP,” added Moody’s Analytics.


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