What it means: Higher interest rates are already hurting governments and corporations with low-credit ratings. That means the value that each additional dollar borrowed adds to the economy has decreased. That could mean $3 trillion more in interest expenses.Īt the same time, note Chan and Dimitrijevic, debt has become less productive since 2007. Fed funds and European Central Bank rates were up an average of 3 percentage points in 2022. “Rising interest rates and slowing economies are making the debt burden heavier,” they write. Why it matters: The demand for debt - to help consumers with inflation, rebuild infrastructure and address climate change - keeps on increasing, wrote Terry Chan and Alexandra Dimitrijevic with S&P Global Ratings in a report on Friday. The world’s leverage is much higher than it was before the global financial crisis the government debt-to-GDP ratio shot up to reach 102% by 2022. That number is about 349% of global gross domestic product, and the equivalent of $37,500 of debt for every single person in the world. That’s the total amount that governments, households and corporations around the world owed in June 2022, as estimated by the Institute of International Finance. Three hundred trillion dollars, to be exact.
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