Debt Update

For the first time in a decade, the ratio of debt to GDP fell back in 2018 for both advanced and emerging market economies. It nevertheless remains high, much higher than at the start of the 2007-08 crisis, and has also continued to rise in some major economies.

The first chart shows the global picture, broken down into the two main country groups counted by the Bank for International Settlements. The ‘advanced’ countries are basically 22 rich ones; the ‘emerging market’ economies are 21 others.* Note also that the data cover the outstanding credit advanced to the non-financial sector, including non-financial corporations, the government and households.

Data for the ratio of debt-to-GDP are given in the next table. It shows that Japan remains a basket case, and its debt ratio has continued to rise. France looks to be in one of the worst positions among the major capitalist countries, with its debt ratio also rising and going above 300% of GDP. While the debt held by the French government has held steady, it has grown among households and corporations. This will keep President Macron and the Gilets Jaunes busy. Elsewhere among the euro countries, the debt ratio has been falling, notably in Germany. 

Total credit to the non-financial sector, 2013-18 (% GDP)

	2013	2015	2017	2018
Advanced economies	268.4	266.5	277.3	265.5
Emerging market economies *	153.3	171.2	191.8	183.2
US	247.4	247.2	250.5	249.8
Japan	363.4	362.0	370.9	375.3
UK	267.7	267.1	283.1	279.3
China	212.7	239.3	253.4	254.0
South Korea	220.3	232.0	231.2	238.2
Germany	192.3	185.2	178.3	175.7
France	281.9	300.8	310.0	311.0
Italy	253.5	270.6	259.7	252.6
Euro area average	264.0	271.3	262.8	258.2

Brexit Britain saw the debt ratio fall a little in 2018, but the odds must be for a further rise of indebtedness this year and next. If likely PM-to-be BoJo can waste so much money as London mayor – from water cannons to garden bridges, buses and a cable car – just think what an empowered narcissist’s plans could be!

China’s debt ratio has risen among the fastest in the past decade or so. Yet the total, at close to 250%, has stabilised in the past year or so and is now similar to that in the US. Ironically, the breakdown shows that ‘communist’ China’s government debt ratio at just below 50% is only half that in the ‘free market’ US, where it registers close to 100% of GDP.

China’s household debt is also lower than in the US, but its non-financial corporate debt is much higher. Nevertheless, around 100% is a common government debt ratio for major countries. Even Germany’s is only just below 70%. So these data would suggest that China has plenty of room, if it chose, to boost its government debt and bail out any corporates in trouble (quite apart from the ability to use its $3.1 trillion of FX reserves).

Tony Norfield, 18 July 2019

Note: * The BIS emerging market economies are: Argentina, Brazil, Chile, China, Colombia, the Czech Republic, Hong Kong SAR, Hungary, India, Indonesia, Israel, South Korea, Malaysia, Mexico, Poland, Russia, Saudi Arabia, Singapore, South Africa, Thailand and Turkey.

China & World Trade

Just in case you had forgotten that China is a major part of the global economy, here is a chart from the Bank of England's Financial Stability Report. It shows that China's share of the international trade in goods is bigger than others for South America and Asia (including Japan and Australia). It is nearly as big as total European trade with the US.

Annoyingly, Africa is left out of the chart calculations, but I suspect China is also biggest there.

This is a stubborn fact that Trump and friends will find it difficult to deal with as they attempt to bully and isolate China in the world economy. It is also one reason they are very likely to fail.

Tony Norfield, 15 July 2019

Looking Out from the Waste Land

A dull day; even the drizzle got bored and left.

No respite from conversations overheard,

Language may as well be dead; just wasted breath.

Only the incurious can thrive.

Just water the weeds, leave roots intact.

Prejudice consoles all that survive.

Explain what these people refuse to know?

When ideas upset brains, and rarely seed

Or give a grip to hold against the flow?

No raw material with which to build,

Just a pulp or the wrong kind of sand

Covers a land where none can be skilled.

I can only study the world and write –

As the imperial machine grinds on –

For eyes elsewhere to read and find some light.

Tony Norfield, 7 July 2019