As the COVID-19 pandemic wears on the long term economic cost is becoming increasingly clear.
Driven by the borrowing of governments and businesses, global debt rose by $19.3 trillion — or 7.1% — in the first nine months of 2020 to a record high of $272 trillion, according to the Institute of International Finance Inc., or IIF.
Most of the increase occurred in the first half of the year when government lockdowns were most stringent. As an equivalent to global GDP the total debt pile surged from 320% to 362%, according to the IIF. The pace slowed in the third quarter as economies rebounded, with just a 2 percentage point rise in global debt-to-GDP in the third quarter.
The IIF expects the continuing swell in debt will see the total top $277 trillion by the end of the year, the equivalent of 365% of global GDP, as the resilience of the virus will compete with the economic recovery.
Government borrowing binge
The biggest increase was in government debt, with the mass of fiscal stimulus increasing the global total by 11% to $77.6 trillion. The other major contributor was the nonfinancial corporate sector where the debt stock climbed by 7.4% to $79.6 trillion as companies rushed to secure liquidity in the face of falling revenues.
The increases were smaller in the financial sector and among households, rising 4.3% in both cases to $65.6 trillion and $49.2 trillion, respectively.
Mature economies racked up debt more quickly than emerging countries. Total debt among developed countries rose 7.4% in the first nine months of 2020 to $196.3 trillion, the equivalent to more than 432% of GDP — an increase of 50 percentage points since 2019 — according to the IIF.
Over half of that increase came from the U.S. where the debt burden soared to $80 trillion from $71 trillion at the end of 2019. The majority of that total was a result of government spending, with fiscal stimulus packages contributing to a $3.7 trillion expansion in debt, while record debt issuance by companies contributed to a $1.7 trillion increase in nonfinancial corporate debt.
US debt burden
U.S. government debt-to-GDP climbed to 127.2% in the third quarter of 2020 having been 101.7% a year earlier. In the nonfinancial corporate sector the debt burden rose to 88.2% of GDP from 74.9% in the same period.
The fiscal stimulus policies adopted in the euro area saw the region's government debt load climb by $1.5 trillion to over $53 trillion. However, this mark is lower than the record high of $55 trillion in the second quarter of 2014, after which the European debt crisis eased.
The debt pile in the euro area is also lower than in the U.S. as a percentage of GDP, despite rising to 115.1% from 101.7% a year earlier. While in Japan the figure is up to 257.2% of GDP having been 227%.
In emerging markets total debt surpassed $72.6 trillion and is approaching 250% of GDP, up from 222% at the end of 2019, which the IIF noted was driven by the nonfinancial corporate sector in China, where debt reached 166.3% of GDP in the third quarter, having been 150.4% a year earlier. Government arrears also shot up, increasing to 63% of GDP from 52.9% in the same period.