Financial costs of COVID-19 led to surge in global debt: S&P Global Report

Global ratings agency S&P Global estimates that global debt outstanding will increase $37 trillion in 2021. This is the size of US and China’s combined GDP – to $225 trillion, a total equivalent to 256% of global GDP.

S&P Global in its report “Global Credit Outlook 2022: Aftershocks, Future Shocks and Transitions” states that higher debt alone is unlikely to trigger a crisis, particularly in the current low interest rate environment. It believes near-term debt dynamics are likely to be favorable.

“Global debt to GDP should fall from 2022 onwards as incomes recover, particularly for the corporate sector. However, interplaying factors such as policy shifts or inflation could lead to a sudden tightening of financing conditions or markets demanding higher risk premiums, consequently putting pressure on the most highly levered parts of the global economy.”

The ratings agency says that the past 18 months have seen an abrupt intensification of the digitalization of capital markets. As such, it expects the adoption of cryptocurrencies and tokenization of assets to increase. And this in turn will disrupt financial markets as the technology evolves and gains wider acceptance and incorporation into the mainstream.

In regards to the ongoing coronavirus pandemic, the report said COVID-19’s economic impact has waned but variants are a concern. It highlighted that its difficult to say with certainty that 2022 will be its last. “Successful vaccination programs and the ramping up of their global vaccine supply offer the clearest route out and the transition from a pandemic to an endemic but manageable disease,” S&P Global said. “Yet, sharply escalating case counts in heavily vaccinated European nations and the threat that omicron or other variants might overcome the existing vaccines are reminders of how far we remain from a post COVID-19 world.”

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The report highlighed that economies are proving adaptable and particularly, when vaccination rates are high, capable of recovering strongly. S&P Global forecasts global real GDP will grow by 4.2% in 2022 – from 5.7% in 2021. But the pace of the recovery is uneven globally and highly correlated with vaccination rates and the magnitude of stimulus.

It says that even in countries where life has returned largely to normal, structural changes to consumer behavior, travel, commercial property and even the desire to work remain apparent. S&P Global said pandemic-related credit risk may have eased, but it has not been removed.