Nicx IchAG

why is extensive Word debt a risk for the world economy?

Extensive global debt poses several key risks for the world economy[1][2][3][4]:

1. Reduced capacity to withstand shocks: High-debt economies are more vulnerable to economic shocks and have less scope for counter-cyclical fiscal policy to support their economies during crises[3].

2. Impaired long-term growth: Excessive debt can undermine long-term economic performance by crowding out private investment, increasing uncertainty, and leading to higher future distortionary taxation[2][3].

3. Spillover effects and financial contagion: Debt crises in one country can spread economic pain to other countries through tightening of financial conditions, slowdown in trade, and loss of confidence[1][4].

4. Debt servicing burden: High debt levels force governments to devote more resources to interest payments rather than productive investments in areas like health, education, and infrastructure[5].

5. Increased risk of sovereign defaults: Unsustainable debt burdens raise the risk of sovereign defaults, which can have devastating effects on domestic economies and the broader global financial system[1][4].

In summary, the extensive global debt burden poses significant macroeconomic risks, including reduced resilience, impaired long-term growth, financial contagion, and the potential for disruptive sovereign debt crises[1][2][3][4][5].

Zitate: [1] Constantinos Herodotou: The global debt trap – the implications for ... https://www.bis.org/review/r230302d.htm [2] How Does Excessive Debt Hurt an Economy? https://carnegieendowment.org/chinafinancialmarkets/86397 [3] [PDF] Economic consequences of high public debt: evidence from three ... https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2450~e008f3b9ae.en.pdf [4] How a Country's Debt Crisis Can Affect Economies Around the World https://www.investopedia.com/ask/answers/051215/how-can-countrys-debt-crisis-affect-economies-around-world.asp [5] A world of debt | UNCTAD https://unctad.org/publication/world-of-debt

His warning chimes with a recent report from the International Monetary Fund which noted that global public debt had edged up to 93% of GDP last year, and was still 9 percentage points higher than pre-pandemic levels. The IMF projected that global public debt could near 100 % of GDP by the end of the decade.

Global Debt Concerns: The World Economic Forum (WEF) president highlighted unprecedented global debt levels, comparable to those last seen during the Napoleonic Wars. Economic Growth Risks: There’s a warning of potential “stagflation” and a decade of low growth if proper economic measures aren’t implemented. Fiscal Measures: Governments are urged to consider how to reduce debt and take the right fiscal steps without triggering a recession. AI Opportunity: Generative artificial intelligence is mentioned as a possible opportunity for the developing world. The page also discusses the global economy’s outlook, inflationary pressures, and geopolitical risks.