Increase in personal debt in Covid Day for dented growth of 0.9-1.3% more than 3 years: IMF
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Debt stacked by the private sector during the Coronavirus pandemic can reduce market growth to grow by 1.3 percent for three years, the International Monetary Fund (IMF) has warned.
For developed countries, the growth hit was seen slightly lower at 0.9 percent compared to the same period, the IMF said in the chapter of the World Economic Outlook report released on April 18.
“The surge in global personal debt at 2020-13 percent of GDP – widespread, faster than during the global financial crisis and almost the amount of public debt increases,” the IMF said in the report.
Funds forecasts in January said the advanced economy was seen growing 3.9 percent by 2022 and 2.6 percent by 2023. GDP growth for emerging markets and developing countries was pegged at 4.8 percent for the current calendar year and 4 , 7 percent for 2023.
These figures are expected to be revised lower, with the Imf Director of the Imf Christian Georgieva told April 14 that the funds will reduce their growth estimates for 2022 and 2023 because of the war between Russia and Ukraine.
The IMF will release revised growth estimates and reports of complete world economic prospects on April 19.
In the chapter released on April 18, IMF said the estimated hit on growth since the increase in private sector debt was prepared before the Russian invasion to Ukraine. They do not take into account the consequences of war possible for the private sector balance sheet.
According to the IMF, a rapid increase in debt may not be sustainable and leads to deleveraging along with the average growth below the average.
“In short, loose financial conditions encourage debt buildup, which increases expenses, growth, and asset prices and further provide credit incentives as an increase in guarantee value. This is finally circulating when returning disappointing or too poor to justify investment funded further debt, providers Loans become alert about rolling over credit and expanding new loans, or financial conditions to tighten and increase the cost of debt services to other expenses, “the IMF said.
Cross-country studies conducted by the IMF showing the current level of private sector leverage can provide greater growth barriers than estimates in countries: debt is more concentrated among households that are financially restricted and the company without risk, the process of bankruptcy is inefficient, space Fiscal is limited, and monetary policy needs to be tightly tightened.
Consideration of inflation
With global inflation increasing for some time now, the IMF said the fiscal and monetary authorities must consider how the tightening of financial conditions will have an impact on the consumers and businesses that are “mostly stretched financially”.
The IMF calculation shows a “surprise tightening” of 100 basis points can weaken investment among very leverage companies of 650 basis points for two years. This will be 400 basis points more than for companies with “small leverage”.
“Where the recovery is going on and the balance sheet in good condition, fiscal support can be reduced faster, facilitating the work of the central bank. Elsewhere, the government must target fiscal support with the most vulnerable to recovery while remaining in credible media. -Term of the skeleton Fiscal, “IMF said.
