Persistent Fall in Private Borrowing Brings Global Debt Down

IMF Blog, December 2, 2024

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Global debt decreased about one percentage point to 237 percent GDP.
Global private debt fell by 2.8 percentage points to 143 percent of GDP, below the 2019 level.
Non-financial corporations and household global debt remains elevated at more than $150 trillion in 2023.
The fall in private debt more than compensated for the turning up in public debt reported in the latest Fiscal Monitor.

Empirical analysis points to low growth prospects as the main driver of the fall in private debt in 2023.
Behavioral channel: households and firms respond to current and expected future growth; given weak growth prospects many firms and households are opting to pay down debt.
The reduction in the contribution from unexpected inflation to debt erosion caused the slowdown in the pace of private-debt decline compared to 2022.

Surprise inflation was a major factor in 2021-2022: since debt is fixed in nominal terms, unexpected inflation can erode the real value of debt and lower its ratio to GDP.
In 2022, inflation reached levels unprecedented since the Great Inflation of the 1970s and early 1980s.
The diminished role of surprise inflation in 2023 reduced this erosive effect on real debt burdens.

A simple visualization is provided via the elasticity of private debt to the difference between growth prospects and current growth.
Interpretation: as economic prospects brighten compared to the current situation, households and firms are more inclined to resort to debt financing; deteriorating growth prospects operate in reverse and encourage debt paydown.
The Global Debt Monitor contains the underlying visual and analysis referenced.

Financial stability risks and policies to mitigate and manage them are covered comprehensively in the Global Financial Stability Report.
The combination of high debt and low growth heightens the challenge of balancing the fiscal equation.
Chapter 3 of the recent World Economic Outlook emphasizes that structural policies are crucial to deliver sustainable and inclusive growth.
The last Fiscal Monitor argues that, in most countries, additional efforts are necessary now to contain public finance risks with a high degree of confidence.
Fiscal policy has a central role among structural policies—for example through public investment and policies that support innovation and research—to deliver enduring, sustained, and inclusive growth.

Authors: Vitor Gaspar, Carlos Gonçalves, Marcos Poplawski-Ribeiro
Date: December 2, 2024
Moderator: Chris Giles (FT)
Panelists:
- Vitor Gaspar (Director, IMF Fiscal Affairs Department)
- Gian Maria Milesi Ferretti (Senior Fellow, Hutchins Center on Fiscal and Monetary Policy, the Brookings Institution)
- Luiz Awazu Pereira da Silva (Visiting Professor, University of Tokyo, LSE, and Sciences-Po Paris)
- Ruth Yang (Managing Director and Global Head of Private Market Analytics, S&P Global)

Source: Persistent Fall in Private Borrowing Brings Global Debt Down (IMF blog, December 2, 2024).

GLOBAL DEBT MONITOR — Recent Developments
- GLOBAL DEBT MONITOR — Recent Developments (Markdown version)
- GLOBAL DEBT MONITOR — Recent Developments (PDF)