Global debt surges past $320 trillion as risk appetite returns

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LONDON (Reuters) – The world’s debt stock surged by over $12 trillion in the first three quarters of 2024 to a fresh record of nearly $323 trillion, thanks to falling borrowing costs and rising risk appetite, a report by a banking trade group showed on Tuesday.

Large government budget deficits suggest that sovereign debt could rise by a third by 2028 to approach $130 trillion, the report from the Institute of International Finance (IIF), a financial services trade group, found – increasing repayment risks worldwide.

“Rising trade tensions and supply-chain disruptions threaten global economic growth, increasing the likelihood of mini boom-bust cycles in sovereign debt markets as inflationary pressures resurface and public finances tighten,” it said in its report, adding that the increased interest cost as a result could “exacerbate fiscal strains” and make debt management increasingly difficult.

The report comes as the world braces for Donald Trump’s second turn in the White House – and his threats to institute trade tariffs on Europe, Mexico, Canada and China.

The anticipated volatility of his policies has led some to issue debt before he takes office in January, when markets could become less predictable.

But the third-quarter debt rise, which took place before the U.S. election in November, was already the third-largest quarterly increase on record, surpassed only by surges during the second and fourth quarters of 2020, when countries and companies rushed to borrow during the COVID-19 pandemic.

Economic growth, particularly in the United States, enabled debt to GDP – a core metric measuring debt sustainability – to slip further, reaching roughly 326% – over 30 percentage points lower than its all-time high after the COVID-19 pandemic borrowing spree.

Debt in emerging markets is approaching a record $105 trillion – a whopping 245% of GDP.

Already, debt service costs are rising everywhere – with costs increasing at the fastest clip in the developed world.

Fully meeting global emissions reductions targets could add an extra $38 trillion to global debt by 2028, the IIF said.

“With significant amortizations due in 2025 and 2026, particularly in emerging markets, rising volatility could leave some sovereigns vulnerable to sudden shifts in investor sentiment, underscoring the risk of liquidity crises.”

(Reporting By Libby George. Editing by Karin Strohecker and Sharon Singleton)