Global Economy More Indebted Than Ever
A recent report by the McKinsey Global Institute shows a rapid build-up in debt within the global eocnomy since the global financial crisis hit in 2007. By the end of Q2 2014, global debt had reached a total of US$ 199 billion, up 40% since Q4 2007.
Source: McKinsey Global Institute: Debt but Not Much Deleveraging, February 2015
In part, this build-up reflects increased government spending in response to the global financial crisis. Governments borrowed to support their economies and had to make up for lost tax receipts as economic conditions worsened.
More worryingly, household debt has shown little sign of coming down and small businesses have shown little sign of any benefit from weaker interest rates, since larger corporate entities are largely responsible for the ramp up in corporate debt.
This view shows that debt remains a huge issue for all sectors, despite the recent upturn in the world economy. More than ever, governments need to take a tough line on budget management and regulatory bodies need to introduce new measures, such as mortgage controls and tighter issuance criteria for corporates, to mollify the risk of debt burdens in the event of a economic downturn.