Growth in global corporate debt
Global debt increased dramatically after the 2008-09 global financial crisis, reaching more than three times global GDP in 2018. Non-financial corporate debt was the main contributor to this expansion.
There is growing concern among practitioners and academics that corporate debt could become a threat to the global economy and trigger a financial crisis comparable to that of GFC. The COVID-19 pandemic has only heightened these fears. As border closures and closures have caused a drop in global economic activity, how businesses manage their debt burden has become a central topic in economic discussions. High corporate debt could become the Achilles heel of the global economy, aggravating the slowdown and hampering economic recovery.
In a new paper, we show that the rise in corporate debt has been concentrated in emerging economies. Between 2008 and 2018, the debt of non-financial corporations rose from 56% to 96% of GDP in these economies, while it grew at the same rate as GDP in developed countries (Figure 1). This rise in corporate debt has been driven primarily by bond markets and has been largely attributed to accommodative monetary policies in developed economies.