The enormous amounts of debt that have accumulated around the world have forced the president of the World Economic Forum to go back more than 200 years to a comparable period.
IN Sunday interview with CNBC At the WEF conference in Saudi Arabia, Borge Brende warned that total debt was approaching total global economic output.
“We haven’t seen this kind of debt since the Napoleonic wars,” he said. “We are approaching 100% of global debt.”
According to the International Monetary Fund last year, global public debt reached $91 trillion, or 92% of GDP.by the end of 2022. This was actually a drop in debt levels compared to the pandemic period, but remained in line with the decade’s upward trend.
Data on global debt during the Napoleonic Wars, which occurred in the early 1800s, is harder to come by. But by comparison, some estimates suggest that by 1815, the British government’s debt would exceed 200% of GDP.
Brende also told CNBC that governments need to take fiscal action to reduce their debts without causing a recession.
Global growth is currently running at about 3.2% a year, which isn’t bad, but it’s also below the 4% growth trend the world has seen for decades, he said earlier in an interview.
This risks a repeat of the 1970s, when economic growth was low for a decade, Brende added. But the world can avoid such an outcome if it continues to trade and does not engage in new trade wars.
“Trade has been the engine of growth for decades,” he said.
The WEF’s debt warning comes amid growing alarm over all the red ink spilled in recent years, especially from major economies such as the US and China.
The IMF said earlier this month that the growing US national debt risks becoming a problem for the rest of the world. That’s because more debt could push up U.S. bond yields, which guide borrowing costs in global markets.
“The accommodative fiscal policy in the United States is putting upward pressure on global interest rates and the dollar,” said Vitor Gaspar, director of the IMF’s fiscal affairs department. according to CNN. “This increases the cost of financing in the rest of the world, thereby exacerbating existing vulnerabilities and risks.”
In fact, 2024 will be the year when U.S. debt servicing costs exceed defense spending, the Congressional Budget Office said.
CBO also assessed March report that US government debt will rise to 166% of GDP, reaching $141.1 trillion by 2054 from 99%, or $34 trillion in debt today.
This growing debt, the CBO warned, “will slow economic growth, increase interest payments to foreign holders of U.S. debt, and pose significant risks to the financial and economic outlook; it may also cause legislators to feel more constrained in their policy choices.”
Likewise, the Government Accountability Office said in its release. separate report released in February that the government faces an “unsustainable” fiscal path that poses a “serious” threat to economic, security and social problems if not addressed.
The situation is also drawing increasing attention on Wall Street, with BlackRock CEO Larry Fink, Citadel CEO Ken Griffin and JPMorgan CEO Jamie Dimon, among others, sounding the alarm.