China and Brazil’s debt levels have risen since 2007 crisis

9 October 2013

China and Brazil are the emerging economies that most increased their levels of debt since the 2007 global crisis, the International Financial Institute (IIF), which brings together the world’s largest financial institutions, said Monday.

According to a report entitled, “Structural Challenges to Emerging Market Growth,” the IIF said that China’s total debt (state, family and non-financial companies), and reached around 200 percent of GDP in the first quarter of this year, as compared to 138 percent at the beginning of 2007.

Brazil was raked second, with total debt of 140 percent of GDP, with an increase of 34 percentage points from 2007 until now.

According to the IIF, although this phenomenon can partly be considered to be the result of financial sector expansion, the fact is that greater debt does not necessarily mean greater economic growth.

“Moreover, such borrowers are more exposed to shifts in interest rates and access to credit, and thus to negative shocks such as a rise in global interest rates,” the report said.

In contrast with several developed economies that have reduced the size of their debt since 2008, emerging markets have seen an upturn in loans, with a substantial increase in the private sector.

Brazil currently ahs the large debt to GDP ratio amongst emerging economies, at 68 percent, whilst debt levels of non-financial companies in Brazil almost doubled, from 24.8 percent of GDP in 2007 to 44.7 percent at the end of March of this year. (macauhub)