[1/2]Japanese yen and U.S. dollar banknotes are seen in this illustration taken September 23, 2022. REUTERS/Florence Lo/Illustration/File photo acquire license rights
NEW YORK, Sept 19 (Reuters) – Global debt hit a record $307 trillion in the second quarter of the year despite rising interest rates curbing bank credit and markets like governments -United States and Japan are behind this increase, according to the Institute of International Finance. IIF) said on Tuesday.
The financial services trade group said in a report that global dollar debt increased by $10 trillion in the first half of 2023 and by $100 trillion over the past decade.
According to the report, this latest increase brought the global debt-to-GDP ratio for a second consecutive quarter to 336%. Before 2023, the debt ratio had been falling for seven quarters.
The slowdown in growth, as well as the deceleration in price increases, are behind the increase in the debt ratio, according to the report.
“The sudden rise in inflation was the main factor behind the sharp decline in debt ratios over the past two years,” the IIF said, adding that with the easing of pressures on wages and prices, even if they do not meet their targets, they expect the debt to pay off. ratio to exceed 337% by the end of the year.
More than 80% of the latest debt accumulation came from the developed world, with the United States, Japan, Britain and France recording the largest increases. Among emerging markets, the largest increases came from the largest economies, namely China, India and Brazil.
“As higher interest rates and debt levels push the government’s interest costs higher, domestic debt stress will increase,” the IIF said.
The report finds that the household debt-to-GDP ratio in emerging markets remains higher than pre-COVID-19 levels, largely due to China, Korea and Thailand. However, this same ratio in mature markets fell to its lowest level in two decades during the first six months of the year.
“If inflationary pressures persist in mature markets, the health of household balance sheets, particularly in the United States, would provide protection against further rate hikes,” he said.
Markets are not pricing in a rate hike from the US Federal Reserve in the near future, but the interest rate target of between 5.25% and 5.5% is currently expected to remain in place at least until May next year, according to the CME FedWatch tool.
Rates are expected to remain high for a long time in the United States, which could put pressure on emerging markets as needed investment is channeled to the less risky developed world.
The Fed is expected to leave rates unchanged at the end of its meeting on Wednesday, but could signal that it is open to further rate hikes.
Reporting by Rodrigo Campos, editing by Karin Strohecker and Alexander Smith
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