SINGAPORE – Swelling debt levels could cause emerging markets to lag further behind developed markets in the economic recovery from the Covid-19 pandemic, an economist said Monday.
“ With the pandemic, debt rose across all species … the big increase was, of course, government debt – and it’s no surprise because of the need to take fiscal stimulus, while tax revenues spread around the world, “he said. Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics, on The Washington City Times’s “Squawk Box Asia. “
“The real impact, however, I think is sort of a widening gap between developed economies and emerging markets. Debt burdens have risen the most in emerging markets and they may have the greatest difficulty in taking care of this debt in the future,” he said. . added.
Total global government, corporate, household and financial debt rose by a record $ 24 trillion in 2020, an analysis by Moody’s Analytics found. The increase brought global debt to a new high of 366% of gross domestic product, the consulting firm said in a report.
Total debt in emerging markets has more than doubled over the past decade and now represents a third of global debt outstanding, according to the report.
Emerging markets, including Turkey, Vietnam and Brazil, were praised in the Moody’s Analytics report for increasing indebtedness in more than one sector.
Many emerging economies, including India, Argentina and Malaysia, are facing a renewed increase in the number of coronavirus infections, while developed markets such as the US, the UK and Australia report a decrease in the number of cases.
Cochrane noted that emerging markets are generally slower in getting and rolling out Covid vaccines compared to developed economies. Meanwhile, increased indebtedness could make governments of those countries more likely to rein in their finances to keep debt under control, he said.
The combination of these two factors would mean that emerging market economic growth is likely to lag behind that of developed economies as the world recovers from the pandemic, Cochrane added.
“If the economy is growing fast, debt won’t be that big of a deal,” Cochrane said.
The economist added that growth will be uneven around the world, with the US and Europe likely to accelerate this summer, while emerging markets “may have to wait a little longer.”