Buttiglione, L., Lane, P., Reichlin, L. & Reinhart, V. (2014) “Deleveraging, What Deleveraging? The 16th Geneva Report on the World Economy“, VoxEU Organisation, 29 September.
The world has not yet begun to deleverage its crisis-linked borrowing. Global debt-to-GDP is breaking new highs in ways that hinder recovery in mature economies and threaten new crisis in emerging nations – especially China. This column introduces the latest Geneva Report on the World Economy. It argues that the policy path to less volatile debt dynamics is a narrow one, and it is already clear that developed economies must expect prolonged low growth or another crisis along the way.
The Lehman Brothers bankruptcy tipped the world into its worst economic crisis since the Great Depression. The recovery has been slow and weak – even in those economies such as the US that emerged first from the acute phase of the Global Crisis. Emerging markets did better during the Crisis, but have recently slowed down. Some, such as China, are seeing marked increases in leverage that raise the odds that they will experience home-grown crises in the future.
To understand the length and depth of the Crisis – as well as the weak recovery – it is essential to analyse the role of debt dynamics. In the 16th Geneva Report on the World Economy, we conduct a deep dive into the details of global debt dynamics over the past decade. This includes consistent comparisons across regions and sectors and an emphasis on the interaction of debt and income. We provide a multi-dimensional perspective on leverage for both advanced and emerging economies. Our comprehensive approach includes both public and private debt, with the latter broken down on sectoral lines (households, non-financial corporates, financial sector). Moreover, we take into account national adding-up constraints by relating sectoral debt levels to the overall international investment position.
Relevant posts:
- Boskin J. Μ. (2014) “Europe’s Options“, Project Syndicate, 22 July.
- ILO (2014) “World of Work Report 2014: Developing with Jobs“, International Labour Organization Research Department, June.
- Pâris, P. and Wyplosz, Ch., (2014) “PADRE: Politically Acceptable Debt Restructuring in the Eurozone”, 28 January.