Fear and loathing in global debt

An analysis of the sustainability and challenges of debt

Originally, debt did not bear the negative connotation it carries today. Debt was – and is – at the heart of new projects and underpins the materialisation of innovations.

Yet, the significant rise in global debt over the past two decades to near all-time highs begs the legitimate questions of its sustainability, and of our capacity to grow without further excessive leverage.

Some inevitable pockets of vulnerability aside, we note that most of the debt remains sustainable for now, mainly thanks to low rates across sectors, maturities, and geographies.

However, high global debt carries necessary consequences, in the form of new central bank policies, inequality, and above all, much lower potential growth.

Today, we may have reached the limits of the debt-driven growth model. The current debt sustainability – while fragile and not a given – may nonetheless be our window of opportunity to grow differently, as reducing inequalities in the vast majority of world economies may be an efficient way to support consumption without relying on excessive debt build-up. This offers some hope that the worst end-game scenarios of disorderly default can perhaps be avoided.

Read our detailed analysis here