As A Result Of The Epidemic, Global Debt Has Reached A New Record.

2021-02-19   |   by CusiGO

The economic bills of the covid-19 epidemic began to draw attention in pockets, companies, households and the Treasury. In 2020, the global debt reached a new record of 281 trillion US dollars (about 232 trillion euros), which increased by 24 trillion US dollars last year alone, a quarter more than the previous decade (88 trillion US dollars). After the worst recession in nearly a century, countries are stuck in a sea of debt trying to survive, according to the International Institute of finance.

In fact, by 2020, the proportion of debt to GDP has increased by 35 percentage points, far higher than that during the financial crisis. At that time, the proportion of debt to GDP increased by 10 percentage points in 2008 and 15 percentage points in 2009. More than half of the debt growth is borne by the government, which will increase by $12 trillion by 2020, accounting for 105% of global GDP, compared with 88% a year ago. The bill reflects both the increase in spending to curb the impact of the epidemic and the loss of revenue from the collapse of activities. “Despite the fact that some of the fiscal measures of the epidemic will be defeated this year, the budget deficit will continue,” the International Institute of Finance (IIF) stressed, predicting that total public debt will increase by another $10 trillion this year.

However, with the advent of vaccines, the expected economic recovery in this fiscal year will contribute to a moderate increase in the debt / GDP ratio, but more complex vaccination scenarios may exacerbate the fiscal deterioration of countries with difficult access to financial markets.

Developed economies, especially Europe, saw the fastest growth in debt. The proportion of non-financial sector debt to GDP in France, Spain and Greece increased by more than 50%. Among the emerging economies, China’s debt ratio increased the most, followed by Turkey, South Korea and the United Arab Emirates.

The report stressed that public guarantees and debt suspension are the main tools to successfully prevent the proliferation of corporate bankruptcy, so that the corporate bankruptcy rate in Europe has declined, while that in China and Turkey has only increased slightly. However, iifi warned that under the current low interest rate environment, if the credit guarantee is extended excessively, it may lead to the accumulation of corporate debt that cannot survive and cause corporate zombies.

“While huge budget deficits are crucial to coping with the crisis, finding the right exit strategy may be more difficult than the crises of 2008 and 2009. Political or social pressures may limit governments’ efforts to reduce deficits and debt, jeopardizing their ability to respond to future crises. It may also limit policy responses to mitigate the effects of climate change and the loss of natural capital, “the group notes, bringing together major private banks around the world.

This is the focus of the report, and ultimately. Because although interest rates remain at historically low levels, central banks are not under pressure to reverse monetary stimulus, The recent rise in commodity prices may lead to a change in the situation, hinder recovery and further aggravate the economic crisis.