Global debt structural risks highlighted
While the overall scale of global debt continues to rise, structural risks have become increasingly prominent.
The tightening of the Fed's monetary policy will undoubtedly bring challenges and risks to emerging economies, but the degree and breadth of the impact of this process may be lower than in 2013.
Compared with the risks of emerging economies, the risk of household debt is becoming the concern and worry of central banks in various countries.
The International Finance Association recently released the latest issue of the Global Debt Monitoring Report, which shows that after a small decline in the total global debt in the first quarter of this year, it rose again in the second quarter.
While the overall scale of global debt continues to rise, structural risks have become increasingly prominent.
In terms of total amount, as of the end of the second quarter, the total global debt reached a record high of 296 trillion US dollars, an increase of 36 trillion US dollars from before the outbreak of the new crown pneumonia epidemic.
Affected by the gradual acceleration of the global economic recovery, 51 of the 61 countries surveyed have seen their debt-to-GDP ratios declined to varying degrees.
The ratio of global debt to GDP also dropped from 362% in the first quarter to 353%.
It is worth noting that this ratio is still at a historically high level, and the dilution effect brought about by the economic recovery is not enough to reduce the debt-to-GDP ratio to the pre-epidemic level.
From the perspective of debt growth regions, the debt scale of emerging economies and advanced economies both rose to varying degrees in the second quarter.
Among them, the debt growth of developed economies has slowed down. After a slight decline in the first quarter, the total debt of advanced economies was affected by the increase in debt of 1.3 trillion US dollars in the Eurozone and the increase in debt of 0.49 trillion US dollars in the United States in the second quarter. At the end it reached US$204.5 trillion; the overall debt of developing economies increased significantly, with the increase in the second quarter reaching US$3.5 trillion. The current overall debt scale is US$91.5 trillion, an increase of US$15 trillion from before the epidemic.
From the perspective of debt structure, the growth of household debt has become the main support for the recent increase in the total global debt.
Affected by the fierce global real estate market, the scale of global household debt increased by 1.5 trillion US dollars in the first half of 2021, and the overall scale reached 55 trillion US dollars, while government and corporate sector debt increased by only 1.3 trillion US dollars and 1.2 trillion US dollars during the same period. Dollar.
One-third of the surveyed countries have seen an increase in household debt as a percentage of GDP.
Emerging economies’ debt risks and household debt ratio risks have become the core of all parties’ concerns.
In response to emerging market debt risks, market investors still have fresh memories of the emerging market panic caused by the Fed tightening in 2013.
In the last round of austerity panic, the Fed’s tightening led to the adjustment of real interest rates in the United States, triggering a re-adjustment of overseas asset allocation, which in turn led to a reversal of the direction of capital flows in emerging market economies and caused turbulence in the financial markets of emerging economies.
Whether this historical logic will repeat itself in the near future is the focus of attention and research of all parties.
From the data point of view, the demand for foreign currency-denominated securities investment in emerging economies has indeed increased during the epidemic.
Data shows that the current foreign exchange debt in emerging markets has reached 9 trillion US dollars, an increase of 430 billion US dollars compared to the end of 2019.
At the same time, the scale of euro-denominated bonds issued by low-income countries has experienced a sharp decline in 2020, and has risen again in the first half of this year, and may reach the equivalent of US$20 billion by the end of the year.
From a theoretical point of view, considering the rapid increase in the scale of foreign debt in emerging market countries compared to before the epidemic, and the relatively weak economic recovery compared with advanced economies, as the Federal Reserve is gradually entering a new round of reduction in debt purchase cycles, emerging markets Risks will inevitably rise again.
This trend is confirmed in the August international capital flow data.
After investors overreacted to a new round of austerity risks in July, emerging markets ushered in an inflow of US$4.2 trillion in securities investment in August, which to a certain extent reflected after the speech by Fed Chairman Powell at the Jackson Hole Economic Policy Forum , Investors’ correction of the new round of austerity risk premium and the return of a reasonable degree of risk to the debt of emerging economies in the future.
However, cross-border capital flows in emerging economies were severely unbalanced in August.
The net inflow in August was mainly supported by the Chinese market.
In August, China attracted a total of US$6.3 billion of net inflows of bond investment and US$3.8 billion of net inflows of equity investment.
If China is excluded, other emerging market countries will experience double net outflows from the stock and bond markets for the first time since March this year.
The tightening of the Fed's monetary policy will undoubtedly bring challenges and risks to emerging economies, but the degree and breadth of the impact of this process may be lower than in 2013.
This judgment is based on the response trajectory of emerging market regulators and the dovish nature of the Fed's new round of monetary policy adjustments.
From the perspective of emerging market countries themselves, at the level of real exchange rates, their current account health is significantly better than in 2013, so their exposure to overseas securities investment portfolios is better than in 2013, which means that the probability of exchange rate crises is greater. Low.
At the level of interest rates, due to high inflationary pressures, the central banks of major countries such as Russia, Brazil, and Mexico have raised interest rates in response to rising inflation, and have reserved a certain amount of policy space for a new round of austerity shocks and weak potential growth.
Judging from the trend of the new round of monetary policy adjustment in the United States, Powell and Bernanke's statements are obviously different.
In 2013, then Fed Chairman Bernanke stated that the Fed will gradually embark on the path of reducing the scale of bond purchases and eventually tighten monetary policy; Fed Chairman Powell's statement in 2021 is that current conditions have met the conditions for reducing the scale of bond purchases. But when to raise interest rates needs to be investigated based on another set of indicators.
The relatively dovish attitude of the Fed and the larger external and fiscal deficits of the United States may limit the appreciation of the dollar in the future.
Therefore, the real exchange rate is more balanced, the external account is more stable, and the interest rate space is more sufficient, which provides a relatively sufficient cushion for emerging economies to respond to the Fed's more dovish tightening path.
Compared with emerging market risks, household debt risks are becoming the concern and worry of central banks in various countries.
Compared with the same period last year, the global financial corporate sector and non-financial corporate sector increased by 3.9 trillion and 0.5 trillion U.S. dollars respectively, while the increase in household debt exceeded the sum of the two, reaching 5.9 trillion U.S. dollars.
Among them, the increase in household debt in emerging economies was US$2.8 trillion, and the increase in household debt in developed economies was US$3.1 trillion.
The Bank for International Settlements recently stated that rising house prices may boost consumption in the short term, but will increase the medium-term downside risks under the condition of simultaneous credit growth.
Current data shows that the boom in real estate is beyond the support of fundamental factors such as borrowing costs and rents. The obvious deviation between housing prices and fundamental determinants means greater risks.
For central banks, one of the challenges of future macro-prudential policies is how to deal with the accumulated financial imbalances, especially the debt and other crisis risks caused by the real estate sector.
The Swiss National Bank also said a few days ago that current data show the unsustainability of real estate mortgage lending and debt scale, and potential future price corrections will bring systemic risks. In its assessment, there are many factors that may induce household debt crises, including unexpected and rapidly rising interest rate adjustments, or a fall in real estate prices, or an increase in mortgage default rates. Regardless of the cause, the emergence of a household debt crisis will directly impact the financial stability of various countries and cause a serious crisis in the social life of residents. (Source of Jiang Huadong: Economic Daily)