Rising global debt holding back growth, opening up vulnerabilities: central bank

U.S.-China trade war, expanding global geopolitical unrest have been key worries for the Bank of Canada

The Bank of Canada’s senior deputy governor says an explosion of global debt over the last decade is a top concern that she argues is holding back economic growth and creating vulnerabilities in the world’s financial system.

The global financial system is in better shape than it was in 2007 before the financial crisis, but unknowns such as ongoing U.S.-China trade tensions could knock things off course, Carolyn Wilkins said in a speech Thursday in Vancouver.

Wilkins also warned that high debt loads usually become an “amplifying factor” when it comes to an economic downturn.

The U.S.-China trade war and expanding global geopolitical unrest have been key worries for the Bank of Canada, she noted.

“The global development that concerns me the most, though, is rising debt,” Wilkins said in her speech at an event hosted by the University of British Columbia’s economics department and CFA Society Vancouver.

“Whether you’re a homeowner or a business person, you know first hand that high leverage can leave you in a vulnerable financial position. It’s no different for economies.

“The world has learned this lesson the hard way on many occasions in my lifetime.”

READ MORE: Central bank holds rate, notes ‘increased uncertainty’ on timing of future hikes

She said the combined global debt owed by governments, businesses and households now amounts to US$240 trillion, which is US$100 trillion higher than just before the financial crisis and more than three times the world’s gross domestic product.

Government debt, she added, has “skyrocketed” over the past 10 years, while corporate borrowing has “exploded” and now displays some risky qualities.

But some debt can be a good thing, she said.

For instance, Wilkins said limited accumulation of public-sector debt can help stimulate economic growth, depending on how it’s used, and companies can borrow as a way to invest in expanding their capacity.

Debt levels around the world piled higher largely because of the long stretch of extremely low borrowing rates that was necessary to help global growth build fresh momentum, she said.

“The downturn would have been even deeper and more painful without these decisive policy responses,” Wilkins said.

“What strikes me, though, is how much overall leverage has grown globally, even as the financial sector has repaired its books.”

Canada’s high household debt, which is now more than 178 per cent of disposable income, is the central bank’s top domestic financial vulnerability, she said.

“The good news for Canadian businesses and households is that the financial system — globally and here at home — is safer than it was a decade ago thanks to much stronger safeguards,” she said.

Wilkins added it’s important for policy-makers around the world to continue efforts to conduct stress tests on different parts of the financial system, and, when necessary, put in safeguards.

Andy Blatchford, The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

SD91 and UNBC held a workshop where students discussed community stressors

Youth voices are important and need to be heard, says UNBC researcher

Fort St. James gets a new CAO

Melany Helmer comes with years of senior management experience

Northwest mobile unit to help those at heart of mental health, addiction crisis

Province, Northern Health unveils new unit in Terrace to bridge gaps in services

Move natural gas pipeline, MP suggests

Coastal GasLink could then avoid opposition

VIDEO: The ‘most cosmopolitan’ of butterflies could migrate to B.C.

The painted lady butterfly will likely arrive this summer from Southern California

Is it a homicide? B.C. woman dies in hospital, seven months after being shot

Stepfather think Chilliwack case should now be a homicide, but IHIT has not confirmed anything

Indecent caller handed 18-month conditional sentence

Vancouver Island man pleaded guilty to making indecent phone and video calls to women across B.C.

Sources say Trudeau rejected Wilson-Raybould’s conservative pick for high court

Wilson-Raybould said Monday “there was no conflict between the PM and myself”

First Nations public art piece stolen in Nanaimo

Spindle Whorl went missing over the weekend, according to Nanaimo RCMP

Father-son duo at B.C. Children’s Hospital helps new dads fight depression

The pair teamed up to introduce the only known research-based mindfulness workshop for new dads

Mexican restaurant in B.C. told to take down Mexican flag

General manager of Primo’s Mexican Grill in White Rock: ‘I’ve never heard of anything like this’

B.C. NDP moves to provide tax credits, tax cut for LNG Canada

Provincial sales tax break of $596 million repayable after construction

COLUMN: Smart phone too powerful a tool to yank from students’ hands

Rather than ban them from schools, let’s teach kids to harness their phone’s power and use it properly

Most Read