(Reuters, London) - Global debt increased by more than $21 trillion in the first half of this year, reaching a record $337.7 trillion (S$438.8 trillion), driven by improved global financial conditions, a weaker dollar, and easing policy by major central banks, according to a quarterly report from the Institute of International Finance.
The Institute of International Finance's recently released Global Debt Watch report indicates that the increase in total global debt in the first half of this year is comparable to the second half of 2020, when governments rolled out measures to respond to the COVID-19 pandemic, pushing global debt to historic highs.
In dollar terms, debt in China, France, the United States, Germany, the United Kingdom, and Japan increased the most during this period, partly due to the depreciation of the US dollar. Since the beginning of the year, the US dollar has depreciated by 9.75% against a basket of major trading partners' currencies.
In terms of debt-to-GDP (GDP) ratios, Canada, China, Saudi Arabia, and Poland saw the largest increases. Conversely, Ireland, Japan, and Norway saw the largest declines.
Overall, the global debt-to-output ratio has continued to decline this year, reaching 324% at the end of June. However, emerging market debt ratios have risen, reaching a record high of 242.4%.
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Emre Tiftik, director of sustainable research at the Institute of International Finance, said that rising military spending amidst growing geopolitical tensions will put pressure on governments' finances.
The Institute of International Finance warned that while debt ratios in emerging markets have risen rapidly, investors are more sensitive to conditions in developed markets. Intensified financial strains in countries like Japan, Germany, and France could trigger a sell-off. The situation in the United States is also a cause for concern. Approximately 20% of its debt is short-term, with short-term Treasury bonds comprising a whopping 80%. This could increase political pressure on the Federal Reserve to cut interest rates, jeopardizing the central bank's policy independence.
The global debt statistics compiled by the Institute of International Finance include government and private debt, including households, businesses, and financial institutions.
