Thursday 18 July 2019

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.

8 comments:

Anonymous said...

You havent clarified anywhere whether the debt numbers before the china graph are government or non government.

Tony Norfield said...

Anonymous: the 250% number for China is total debt, while the 50% number is government debt. These numbers represent credits to the non-financial sector of the economy. That should have been clear enough from the text, and the chart shows this too, with the red bar at 50% and the total at 250% in 2018.

Tony Norfield said...

... sorry, if you only mean the data before the China graph, these are total debt data, ie all credit to the non-financial sectors of the economy (govt + households + non-financial corporations).

Mehmet İnce said...

These numbers can be obtained from any web-site related to this issue. I think you must go one step further and explain what are the conclusions to be drawn from this situation.

Tony Norfield said...

Mehmet Ince: This was a brief update on the debt numbers. There is little to add to the comments I have made before on this issue. What 'conclusions' would you draw?

Mehmet İnce said...

Well, you are the expert on this. But I think the fact the the high debt ratio and flat profitibility rates of the US firms since 2012, the slowing growth rate of China, cronic low growth rates in Europe and Japan coincided shows that the next crisis will be much stronger, that the governments will have less arsenal to cope with it. Of course this will have dire political implications.

Tony Norfield said...

Reply to Mehmet Ince: The reason I have paid attention to the level of debt in the past few years is that it is the most direct indication of chronic nature of the crisis. The acute phase has gone (in 2008-10 for many countries), but the debt ratios show that huge liabilities still remain.

These liabilities are also the assets of banks and, directly or indirectly, of insurance companies, pension funds, etc, too. This mountain of debt lays claim to value produced in the world economy but those obligations cannot be met. Policy makers in the major countries have tried to ward off the problems with continued low interest rates, to make the debt serviceable, and there have also been some debt write offs. But I agree with your comments that this now leaves central banks and governments with fewer policy bullets.

Who knows what shape the next crisis will take? My view is that an abrupt, sharp recession like in 2008 is unlikely. Banks are in a stronger position now and have improved capital ratios, so a repeat of the rapid, panic contagion seen then is not probable. But this still points to an extended period of chronic economic malaise, one that will produce more reactionary politics in many richer countries.

My view of the latter political developments is given in a book review: https://economicsofimperialism.blogspot.com/2018/12/liberals-populist-right-politics-of.html

Mehmet İnce said...

Thank you.