Connect with us

Hi, what are you looking for?

Right Decision NowRight Decision Now

World News

Rate rises could add $8.6 trillion to global borrowing costs — S&P

LONDON — Central bank rate rises could land global borrowers with $8.6 trillion in extra debt servicing costs in coming years, S&P Global estimated on Friday, warning of a slowdown in economic activity as a result.

Major central banks have delivered a record 2,700 basis points of rate hikes in 2022 to stamp out high inflation while concerns have been growing about higher borrowing costs sparking a global recession.

“Higher interest expenses are already straining less-creditworthy governments and corporates, and lower-income households,” S&P Global, a financial intelligence company that includes a debt ratings service, said in a report.

Businesses’ required returns on new projects were rising along with debt costs, S&P Global added, in a trend that would “dampen future business activity volumes”.

“Rising interest rates and slowing economies are making the debt burden heavier,” S&P Global added in the report launched ahead of next week’s World Economic Forum in Davos, Switzerland.

“To mitigate the risk of a financial crisis, trade-offs between spending and saving may be needed.”

S&P Global based its estimate of an $8.6 trillion extra interest bill by applying a three-percentage point rate increase to $300 trillion worth of global debt. Around 65% of the extra debt service cost would be paid on fixed-rate bonds and loans as they were refinanced “over time,” the report said.

It also projected that the global debt-to-gross domestic product (GDP) ratio — a marker of leverage risk in the financial system — could rise in a worst case scenario to 391% by 2030, from 349% in June 2022.

S&P Global is adding its voice to a chorus of warnings from policymakers and multilateral institutions about the impact of higher debt servicing costs on fragile economies and companies, as well as struggling households.

Last month, World Bank President David Malpass said at a Reuters conference that the world’s poorest countries now owed $62 billion in annual debt service costs to official creditors, an increase of 35% over the past year, sparking concerns about a disorderly default trend.

In September, the Vulnerable Group of 20 (V20), a group of 55 economies exposed to the fallout from climate change, forecast their debt interest bill would rise to a point where they would struggle to safeguard their populations from natural disasters. — Reuters

    You May Also Like

    Business

    The head of the International Monetary Fund has warned of increased risks to the stability of the financial system after weeks of banking sector...

    World News

    BEIJING — China landed an uncrewed spacecraft on the far side of the moon on Sunday, overcoming a key hurdle in its landmark mission...

    World News

    LONDON — Talks aimed at reaching a global agreement on how to better fight pandemics will be concluded by 2025 or earlier if possible,...

    World News

    SINGAPORE — Ukrainian President Volodmyr Zelensky’s unscheduled appearance at Asia’s biggest security conference dominated proceedings on Sunday after China’s defense chief slammed “separatists” in...

    Disclaimer: rightdecisionnow.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 rightdecisionnow.com | All Rights Reserved