The strange anatomy of global debt

Global debt trends matter and current levels are extremely high. However, there are significant differences between segments of governments, companies or households with widely varying sensitivity to changes in interest rates (taking into account the duration and differences between variable and fixed interest rates). There is also a thick dividing line for those who borrow from banks or the bond market. This helps justify this year's sharp slowdown in growth in Europe, compared to the better performance in the US, and also explains China's actions to curb real estate sector compared to the surprising macroeconomic resilience of emerging markets. It also puts a big question mark over Japan, which is starting to raise interest rates for the first time in 15 years while having the highest level of sovereign debt in the world.

Global debt

Total global debt among households, businesses and governments is almost $250 trillion, equivalent to 250 percent of global GDP. The long-term trend is relentlessly rising debt, fueled by chronically large government deficits in developed markets and China's real estate needs. In recent decades, the share of public debt in global GDP has tripled, while China accounts for 30%. all global corporate debt. However, in the longer term, debt levels have stabilized and fallen sharply as a share of GDP. This happened because rising inflation increased nominal GDP and reduced the debt burden of fixed costs.

National debt

Debt structure matters and varies from country to country. Debt levels in Japan seem sky-high, but they are government-focused and supported by under-debt consumers. By contrast, the government and households in China are lightly indebted, but its corporations are the most indebted in the world. Consumers in the United States and the United Kingdom are among the most indebted in the world and, unsurprisingly, dominate the economy, while European governments and companies are more indebted than American ones. Finally, much of the recent relative resilience of emerging markets can be explained by their low debt levels, concentrated in local currency rather than US dollars.

About the author

Ben Laidler - global markets strategist in eToro. Capital investment manager with 25 years of experience in the financial industry, incl. at JP Morgan, UBS and Rothschild, including over 10 years as the # 1 investment strategist in the Institutional Investor Survey. Ben was the CEO of the independent research firm Tower Hudson in London and previously Global Equity Strategist, Global Head of Sector Research and Head of Americas Research at HSBC in New York. He is a graduate of LSE and Cambridge University, and a member of the Institute of Investment Management & Research (AIIMR).