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How the rising debts threaten world economy

corrections to the growth expectations for the world economy to take Down no end. In his published yesterday, world economic Outlook, the International monetary Fund (IMF) agreed to in this round. In 70 percent of all countries is expected to weaken, according to the report, the economy, the world economy as a whole by only 3.3 percent, after 3.8 percent in the previous year. More significantly, the slowdown in Switzerland or in Germany, is expected to be. In Germany, the gross domestic growth product by only 1.1 percent, compared to 2.5 percent in 2018. In Germany, too, is expected to halve the growth from 1.5 in the previous year to 0.8 percent.

Like other forecasters, the monetary Fund refers to a large uncertainty in the Forecast due to a number of remaining risks, such as to the outcome of the trade war between the US and China, for Brexit or a renewed Euro crisis, especially in view of the political development in Italy.

today the IMF published "Fiscal Outlook" on the situation of the state finances and the "Global Financial Risk Report" to the risks to the global financial and capital markets, both of which make it clear that the risks to growth are still closely linked in many places, high public and private debt.

Higher government debt

The high level of debt, especially in Private was regarded as one of the causes of the financial crisis. Has improved in this respect, little. The national debt is measured by the gross domestic product (GDP) today, the whole world is considered even higher than before the crisis, which also goes back to the measures for overcoming the crisis by the public sector in many countries. Particularly strong increase since 2007 in the United States – from 67 percent of GDP to 106 per cent in the current year, according to estimates by the IMF, and they are likely to increase due to the tax cuts of the Trump Administration. Clearly the national debt has increased since the financial crisis in the member countries of the Eurozone, with the exception of Germany. Also in Switzerland, where she was in the cross-comparison has always been deep, you go according to the IMF, from about 45 percent in 2007 to below 40 percent of GDP in the current year.

also the debt of Private have Increased in the last few years. Possible the the low interest rate policy of the Central banks. In a number of countries, the inclusion of relatively cheap mortgages has fuelled the real estate market – and given the lack of yield alternatives as well as institutional investors such as pension funds or insurance companies have invested heavily in the housing market. As a Delegation from the monetary Fund, held recently during a visit in Switzerland, this development in Switzerland is of great importance. The private debt is among the highest. The debt coverage real estate would dissolve but partially in the air, when their prices would fall by a sharp economic downturn or rising interest rates.

banks get a better way

Clearly, the debt of the company have increased. Their debt to the capital market (borrowing) today, it is also higher than before the financial crisis. Bond debt grew significantly more strongly than those on loans from the banks. So many companies have payouts also corporate purchases and a Dividend on the capital markets funded. The banks come away with a total in the report of the IMF better. The debt situation has improved compared to the period before the financial crisis. Significantly less stable than those in the United States and those of the Eurozone, but still.

The development of the public debt is particularly sensitive, given the prospect of weaker economic development. In a crisis, the debt increases automatically: because expenditures for unemployment and other social costs go up and tax revenues go back. In the case of a declining or less than the debt growth of GDP, the debt also increases the rate, and the operation of the exposure is difficult.

And high levels of public debt reduce economic policy options to respond to a crisis appropriately. The correct address for the Central banks would be actually. However, in the face of very low to negative interest rates, your possibilities are already excluded to a large extent. Only higher government spending remained. However, a high level of debt in many countries – particularly those without an independent currency.

A sharp decline in the economy, but it also has dangerous consequences for indebted companies. Because their yields are at risk also decreases for the sustainability of the debt. According to the IMF, the corporate earnings have already reached its peak, in the current year, the Fund's economists with their decline. And the debt has risen in the first line where the risks are particularly high: "The debts, especially in companies with lower credit and higher Debt ratios – this is often a harbinger of an economic deterioration, or of financial crises," writes the IMF in its stability report.

dangers even if growth

Since the financial crisis, has quadrupled the amount of outstanding bonds with a BBB-Rating. This Rating belongs to the lowest category of "Investment Grade" bonds, which cannot yet be considered highly speculative. In the event of a deterioration of the General economic prospects of such debt are at risk, therefore, quickly as a failure, which can have an impact on the whole financial stability.

While the debt may aggravate the situation further if the economy weakens significantly, there are also considerable risks, if the growth increases surprisingly strong and the Fears prove to the economic as unnecessary. Because in this case, is likely to see a rise in interest rates, not least because the Central banks have to tighten monetary policy. Higher interest rates would, however, mean that the recording of debts or the redemption of existing debt more expensive solid. Outstanding bonds and other investments such as real estate would lose value. This is also a threat to financial stability.

(editing Tamedia)

Created: 10.04.2019, at 18:56

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