Kaushik Basu warns in a Project Syndicate column about the danger of growing debt worldwide.
Over the last decade, the world economy has experienced a steady build-up of debt, now amounting to 230% of global GDP. The last three waves of debt caused massive downturns in economies across the world. …
… The World Bank has just warned us that a fourth debt wave could dwarf the first three. Emerging economies, which have amassed a record debt-to-GDP ratio of 170%, are particularly vulnerable. As in the previous cases, the debt wave has been facilitated by low interest rates. There is reason for alarm once interest rates begin to rise and premia inevitably spike. …
… There are several countries that fit this description and run the risk of being the conduit that carries the fourth debt wave to the world economy. Among advanced economies, the United Kingdom is an obvious candidate. In 2019, the UK narrowly avoided a recession, with a growth rate a shade above zero – the weakest growth in a non-recession period since 1945. The country is also about to undertake Brexit. Conservatives in Britain have promised that a “tidal wave” of business investment will follow. This is unlikely: if there is a tidal wave, it will probably be one of debt instead.Among emerging economies, India is especially vulnerable.
