Global debt (USD bn, LHS) and debt ratio (% GDP, RHS) since June 2009 (Source: BIS; CMMP)
The key message
The world has been passively deleveraging since December 2020 – i.e. debt has been growing at a slower rate than nominal GDP.
This is in contrast to the impression given by popular narratives (see example WEF quote below) about a world “drowning in unsustainable and/or rising debt”.
“Global debt is borrowing by governments, businesses and people, and it’s at dangerously high levels”
World Economic Forum, October 2023
According to the latest BIS data, the total debt ratio (of all BIS reporting economies) fell to 247% GDP in June 2023, down from 290% GDP in December 2020 (see key chart above).
The absolute level of debt also fell from $231tr in March 2022 to $227tr in June 2023 (i.e. active deleveraging).
Note that:
- In terms of relative growth, global debt has grown at a CAGR of only 3.4% over the past three years compared with a 6.4% CAGR in nominal GDP
- The debt ratios of the government, HH and NFC sectors all peaked in December 2020. Since then, the government debt ratio has fallen from 109% GDP to 87% GDP, the HH debt ratio has fallen from 70% GDP to 62% GDP, and the NFC debt ratio has fallen from 110% GDP to 97% GDP
- In absolute terms, government debt peaked in December 2021 ($85tr) while both HH and NFC debt did not peak until March 2023 ($58tr and $89tr respectively)
- Of the two private sector debt ratios, only the NFC debt ratio is above the BIS’ threshold limit of 90% GDP
- The structure of global debt has shifted towards public debt and away from higher-risk HH debt since the GFC. This process has been led by the US (see subsequent posts and “Challenging flawed narratives“)
Given the above, a more accurate summary of global debt dynamics might read:
“Borrowing by governments, businesses and people is growing at a slow pace than nominal GDP as the world continues to de-lever. The structural shift away from relatively higher-risk HH debt towards lower-risk public debt also continues, led by the US. Nonetheless, the risks associated with the level of NFC indebtedness remain elevated, albeit lower than in the recent past.”
Viewed in this context, the relative resilience of consumption and growth in advanced economies in the face of unprecedented monetary tightening might have been less surprising…
Please note that the summary comments and chart above are abstracts from more detailed analysis that is available separately.