Global Debt Hits $337.7 Trillion, Driven by Central Bank Policies and Weakening US Dollar

Global debt surged to an unprecedented level of 337.7 trillion dollars by the end of the second quarter, driven by a relaxed global financial environment and a weakening US dollar. This increase in debt is comparable to the rapid accumulation seen during the pandemic. The primary contributors to this surge include the accommodative policy stances adopted by major central banks, which have led to a significant rise in government debt among G7 nations. Additionally, emerging market debt has also reached a new peak, facing substantial repayment pressures.

According to the report, the total global debt increased by over 21 trillion dollars in the first half of the year, reaching 337.7 trillion dollars. This increase was particularly pronounced in countries such as France, the United States, Germany, the United Kingdom, and Japan, partly due to the depreciation of the US dollar. The US dollar has depreciated by 9.75% against a basket of major trading partner currencies since the beginning of the year.

The report highlights that the scale of this debt increase is comparable to the surge seen in the second half of 2020 during the pandemic, when policy responses to the crisis led to an unprecedented accumulation of global debt. When measured as a ratio of debt to GDP, a key indicator of debt repayment capacity, countries like Canada, Saudi Arabia, and Poland showed the most significant increases. Conversely, countries such as Ireland, Japan, and Norway saw a decrease in their debt-to-GDP ratios.

Overall, the global debt-to-GDP ratio continues to decline slowly, currently standing slightly above 324%. However, the ratio for emerging markets reached a new historical high of 242.4% in May, following a downward revision. The total debt in emerging markets increased by 3.4 trillion dollars in the second quarter, surpassing 109 trillion dollars and setting a new record. The report warns that emerging markets will face record repayment pressures of nearly 3.2 trillion dollars in bonds and loans over the remaining time until 2025.

The report also notes that rising geopolitical tensions and increasing military expenditures are exacerbating fiscal pressures on governments. The growth in debt is primarily concentrated in the government sector, with G7 member countries experiencing a sharp rise in government debt. The reaction in developed economies' bond markets has been more pronounced, with 10-year government bond yields in G7 countries approaching their highest levels since 2011. The report cautions about the potential for "bond vigilantes"—investors who sell the bonds of countries they deem fiscally unsustainable—adding to the fiscal pressures on countries like Japan, Germany, and France.

The report emphasizes that while emerging market government debt ratios have generally risen sharply in the first half of the year, the market reaction in mature markets has been more intense. It specifically highlights the significant debt risks in the United States, where short-term debt accounts for approximately 20% of total debt and 80% of US Treasury issuance. This reliance could increase political pressure on the Federal Reserve to maintain low interest rates, potentially compromising the independence of monetary policy.