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2 Global debt analysis: Deleveraging
What deleveraging
In this chapter, we analyse recent trends in global leverage, focusing on the
dynamics of debt-to-income ratios (see Chapter 1 for the motivation behind this).
In particular, we consider the evolution of the ratio of total debt to GDP, as well
as its components: financials and non-financials, domestic and external, public
and private, household and corporate. 7 As shown by recent experience, focusing
exclusively on public debt may be misleading; total debt and its composition is
what matters for a comprehensive assessment of the leverage problem.
The data point to the following facts:
1. The world is still leveraging up; an overall, global deleveraging process
to bring down the total debt-to-GDP ratio – or even to reduce its growth
rate – has not yet started. On the contrary, the debt ratio is still rising
to all-time highs.
2. In the main Anglo-Saxon economies (namely, the US and the UK),
where the deleveraging process in both the financial sector and the
household sector has made significant progress, this has come at a cost
of increased debt for the consolidated government sector (see Section
4.1).
3. Until 2008, the leveraging up was being led by developed markets,
but since then emerging economies (especially China) have been the
driving force of the process. This sets up the risk that they could be
at the epicentre of the next crisis. Although the level of leverage is
higher in developed markets, the speed of the recent leverage process
in emerging economies, and especially in Asia, is indeed an increasing
concern (see Section 4.3).
4. The level of overall leverage in Japan is off the charts; while its status
as a net external creditor is an important source of stability, the
sustainability of large sectoral debt levels remains open to question.
Contrary to widely held beliefs, six years on from the beginning of the financial
crisis in the advanced economies, the global economy is not yet on a deleveraging
path. Indeed, according to our assessment, the ratio of global total debt excluding
financials over GDP (we do not have, at this stage, a reliable estimation of
financial-sector debt in emerging economies) has kept increasing at an unabated
pace and breaking new highs: up 38 percentage points since 2008 to 212%.
7 The data appendix at the end of the report explains the definition of variables and the data sources.
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