An “unexploded bomb” of debt is being destabilised by the coronavirus shock, the global banking body has warned, as it predicted an “unprecedented surge” in borrowing ahead.
三级成人视频More than $20 trillion (£16 trillion) of global bonds and loans due before the end of the year pose a “refinancing risk” with vulnerable emerging markets heavily exposed to the latest crunch, according to the Institute of International Finance (IIF).
“In the past we’ve warned that a global shock could destabilise the mountain of debt that’s been created in the last decade, creating an avalanche of defaults” warned Emre Tiftik, an IIF director. “We’re in the midst of the destabilising shock we were worried about. A sharp, upward trajectory in debt levels looks all but certain.”
三级成人视频The global economy is starting a new crisis with corporate, household and government debt at levels never seen before after a decade of ultra-low borrowing costs and risky investor behaviour. Signs of strains have already emerged in corporate credit, particularly the junk bond and leveraged loan markets, while government borrowing is set to enter uncharted territory.
The world economy is entering a recession with $87 trillion more debt than at the onset of the financial crisis. The global debt to GDP ratio has risen by 40 percentage points over that period to an eye-watering 322pc and will hit 342pc this year, the IIF said.
Unprecedented government support for economies and interest rates being slashed to new record lows are expected to drive debt even higher in the coming years. “Highly accommodative monetary and fiscal policy are essential to mitigate liquidity and solvency risks, but prolonged ultra-loose policies could result in still greater debt imbalances,” said Mr Tiftik.
The IIF said government borrowing has been the biggest contributor to rocketing debt levels since 2007. Monthly public sector borrowing doubled in March as policymakers try to limit the economic carnage caused by Covid-19.
Public debt in Europe, the United States and Japan is already elevated and is set to surge even higher. US government debt will rocket from just over 100pc of GDP to 133pc in 2021, levels currently seen in Italy, economists at UniCredit have predicted. Meanwhile, Italy will close in on borrowing levels seen in Greece, with debt hitting 156pc of GDP, up from 135pc in 2019.
Another economic blow to the eurozone is set to ratchet up the pressure on already stretched public finances in the region. However, the European Central Bank’s huge intervention into bond markets and interest rates being kept lower for longer are expected to keep yields low on sovereign debt, dampening the risk of a fresh crisis.
“To keep public debt manageable, the eurozone will remain crucially dependent on interest rates staying very low for the foreseeable future,” said Anna Titareva, an economist at UBS.
三级成人视频One proposal to spread the hit to public finances in the eurozone was rejected by more frugal members this week. Germany and the Netherlands rebuffed an attempt by nine eurozone members – including France, Italy and Spain – for the bloc to issue joint debt known as coronabonds.
Analysts fear the mountain of corporate debt that has grown since the financial crisis is more vulnerable, however. Certain industries are facing an unprecedented cash crunch as lockdowns bring economies to a complete stop. Credit spreads, a gauge of risk comparing the yields on bonds with different credit quality, such as high-yield and government debt, have widened substantially during the crisis, making it more costly for companies to tap markets. Analysts are bracing for a sharp rise in debt defaults and downgrades in credit ratings.
“With high-debt, corporate sectors facing serious refinancing risks, firms with limited cash buffers are highly sensitive to prolonged disruption, particularly if a V-shaped recovery fails to materialise,” said Mr Tiftik.
Corporate borrowing has hit record levels in the US with Goldman Sachs warning of the need to issue tens of billions of dollars’ more debt to survive the looming recession. If the coronavirus crunch lasts three months, investment grade companies will need $40bn in new financing and high-yield issuers will need a further $28bn.
However, governments and central banks have introduced schemes to ease the pressure. The high-yield bond market enjoyed its best day in a decade on Thursday after the Federal Reserve announced it would expand its purchases of corporate bonds to include exchange traded funds of companies rated below investment grade.