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We look at five main points from McKinsey’s latest Global Institute Study that elucidates on global debt levels

Shanghai, China. The country's debts have risen significantly, quadrupling since 2007. At 282 percent of GDP, China's debts are manageable, however

Global debt has grown

Although it was widely forecast that the world’s economies would deleverage after the financial crisis, the McKinsey study shows this has not been the case. Not a single major economy and only five developing countries have reduced their debt to GDP ratio in the real economy, and, since 2007, the burden has grown by $57tn, equivalent to 17 percentage points of GDP. The findings also show that household debt levels in northern Europe, Canada and Australia are higher even than they were in the UK and US at the peak of the crisis.

China’s debt is rising

The most telling statistic of all is that China’s debts since 2007 have quadrupled, up to $28.2tn from $7.4tn, as of last year’s second quarter. By most estimates, China’s debt ratio is manageable at 282 percent of GDP, up from 158 percent, though still larger than either the US or Germany’s current level. The concentration of debt in real estate, the growth of the shadow banking sector, and a tendency among local governments to borrow off the books could exasperate the country’s already delicate situation.

Shadow banking on the slide

Where once shadow banking posed a considerable threat to the global economy, the sector – at least from a global perspective – is on the slide. Regardless, non-bank credit remains an important growth engine as many in the banking sector struggle to come to terms with a more stringent regulatory landscape. The financial sector has raised capital and reduced leverage in advanced economies, and, in doing so, overturned a dangerous trend where the sector’s debt load grew from $20tn in 2000 to $37tn in 2007.

Household debt on the up

Although rising household debt levels were a large part of why the financial crisis struck in the first place, an unwillingness to deleverage unsustainable debts shows that, in many countries, the lesson has not be learned. Whereas households in the US, UK, Ireland, Spain and Portugal have taken steps to address the issue, household debt in the Netherlands, Norway and Denmark has tipped the 200 percent mark, greater even than at its peak in the US.

Government debt

Government debt has increased both in advanced and developing economies since 2007, by $19tn and $6tn respectively. Taking into account fiscal balances, inflation, interest rates and growth projections, the McKinsey report forecasts that the government-debt-to-GDP ratios will continue to rise for at least the next five years. The study also shows that in order for Spain, Finland, Japan, Portugal, France and Italy to reduce their debts, real GDP growth would need to be twice its current level, which seems all the more unlikely in a current climate of lacklustre growth and low inflation.

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