The 1920s are on the way to competing in shocks with those of the last century: the decade then ended with a historic economic earthquake. According to a World Bank report, in 2020 alone, economic activity fell in 90% of countries, the global economy shrank by around 3%, and poverty increased across the planet for the first time in a generation. The two-year-long pandemic has shot up public debt by just over 25%.
With the economy kneeling on the canvas, knocked out, the invasion of Ukraine has increased that game. Western governments have been forced to borrow more funds in order to finance anticipated defense spending. The global economic scenario hardly resembles that of the end of 2019. The serious consequences in sectors such as energy, logistics supplies and cereals are just the tips of the iceberg.
Never before in history has the world economy been so indebted, both in absolute terms and as a percentage of GDP. During the last decades the inhabitants of the planet have become accustomed to a world dominated by credits, debt and all kinds of financial products.
In this way, according to the latest data published by the International Monetary Fund (IMF) and the Institute of International Finance, the volume of debt issued throughout the world amounts to approximately 296 billion US dollars. The equivalent of about 227 times the size of the Spanish economy. A dizzying figure that represents about 350% of world GDP.
In the last decade this enormous accumulation of debt has had two main protagonists: the public sector and China.
On the one hand, in recent years governments have displaced companies as the largest borrowers of debt. In fact, today the volume of public debt issued is already equivalent to almost 100% of world GDP, almost as much as the debt that companies, families and governments themselves added up in the 1970s. This is an evolution that the shock caused by the coronavirus has accelerated, but whose structural trend is long overdue.
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On the other hand, keep throbbing volcano from China. Since the 2008 crisis, the Asian giant’s economy has doubled its volume of debt compared to the 20% growth recorded globally. In this case, the main protagonists have been public companies, which have considerably increased their volume of investment and spending in an attempt to fuel the growth of the country’s economy.
On the other side of the world map, no one is oblivious to the constant rebound effect. Among the large developed economies, a traditional locomotive Like Germany, it has registered the highest percentage increase, with a rise in indebtedness of 14.7%, almost double the world average.
the positive reading
Despite this huge escalation in global debt levels, the good news is that real interest rates paid by borrowers have continued to fall. This, according to many experts, could be due to a structural change in the economy. Demographic aging, globalization and higher levels of inequality in developed countries could explain this paradox: that there is more and more debt in the world at the same time that financing is becoming cheaper.
But what are the implications of this enormous tsunami of bonds, loans and debts of all kinds and what does the new policy announced by the main central banks mean? They are analyzed in the last video of If I had known, the financial information channel of Mutuactivos.