The latest IMF Fiscal Monitor is called – Debt, Use it Wisely. It is salutary reading though nothing very new – readers of this blog will be aware we have been banging on about high debt for several years.
But the latest report says that globally, the total of public and private debt is around $US152 trillion ($199 trillion). They conclude that some advanced economies face greater risks now in the event of crisis mirroring that seen in 2008. We are, they say, highly exposed. You can look at the global debt clock here.
Vitor Gaspar, the IMF’s head of fiscal affairs said “At $US152 trillion, global debt is at record highs and constitutes one of the most important headwinds against growth in the global economy.”
“When there’s a build-up of private debt, the likelihood of a financial crisis is higher and financial recessions are more costly and prolonged than normal recessions.”
Looking at the country specific material, the IMF warns about debt in China. “If the corporate debt problem in China is left unaddressed it will have significant consequences in China and increases the risks of a hard landing”.
Australia also gets a specific mention with a focus on the rise of private sector debt alongside Canada and Singapore
The IMF has suggested that government guarantees and tax incentives like negative gearing, especially those introduced to firewall banks during the global financial crisis, should be reviewed.
They also warn that “Financial institutions in advanced economies face a
number of cyclical and structural challenges and need to adapt to this new era of low growth and low interest rates, as well as to an evolving market and regulatory environment. These are significant challenges that affect
large parts of the financial system, and if unaddressed could undermine financial soundness”.
“Over 25 percent of banks in advanced economies (about $11.7 trillion in assets) would remain weak and face significant structural challenges. More deep-rooted reforms and systemic management are needed,
especially for European banks. Japanese banks also face significant business model challenges. These banks are expanding abroad to offset thin margins and weak domestic demand, but this exposes them to greater dollar funding risks. A disruption of dollar funding sources could force Japanese banks to curtail their offshore lending and investment”.
Not Pretty.
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