The International Monetary Fund has released a report claiming that global debt has reached a record high $152 trillion. Furthermore, the agency claims that this massive—and still growing—debt continues to press down on international economic growth, adding to the many risks which any recovery could quickly turn to stagnation, and perhaps even recession.
With that in mind, then, the IMF goes so far as to say that the worst-case scenario would be that this could result in a populist politics wave across both the United States and Europe, a wave that could reverse globalization via protectionist policies that will obstruct international trade and investment and trade, a move that could send the global economy into an even longer period of stagnation.
In its fiscal monitor, the IMF said, “At 225pc of world GDP, the global debt …is currently at an all-time high. Two-thirds, amounting to about $100 trillion, consists of liabilities of the private sector which can carry great risks when they reach excessive levels.”
This new warning came after the IMF cut its growth projections for many countries. And now the IMF is urging governments to assist those troubled banks in the worst-affected parts of Europe by spending more money focused on boosting economic growth wherever possible. Of course, they also hope this helps to reform economies in order to increase GDP and, perhaps more importantly, to keep borders as open as humanly possible.
The agency goes on to say, “The sheer size of debt could set the stage for an unprecedented private deleveraging process that could thwart the fragile economic recovery.”
Low growth, high debt and weak banks could combine, the IMF says, to plunge the world deeper into a more dire financial and political direction. The agency goes on to warn, in its global financial stability report, “The political climate is unsettled in many countries. A lack of income growth and a rise in inequality have opened the door for populist, inward-looking policies.”
Finally, they add: “These developments make it even harder to tackle legacy problems, further expose economies and markets to shocks, and raise the risk of a gradual slide into economic and financial stagnation. In such a state, financial institutions struggle to sustain healthy balance sheets, which weakens economic growth and financial stability.”