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

Vancouver Island overdue for the big one, can also expect mega-thrust tsunami

The last big earthquake was 70 years ago in Courtenay

Most Victoria transit takers thank their driver: poll

Bus riders thank drivers on Transit Driver Appreciation Day

Volunteer needed to empty dog poop can in Saanich Park

Local volunteers do the work of irresponsible dog owners at Mount Doug

Sexual assault charge dropped against former CFB Esquimalt member

Navy Lt. Ronald Clancy was charged with two counts of sexual assault in August 2018

BC Ferries considers passenger only ferry between West Shore and Victoria

Royal Bay, Esquimalt and Ship Point considered as part of study into new route

VIDEO: RCMP ask kids to help name soon-to-be police dogs

13 German shepherd puppies will be born this year

Horvat scores 16 seconds into OT as Canucks beat Blackhawks 3-2

Pettersson sets rookie scoring record for Vancouver

No injuries, pollution in Vancouver Harbour ship collision: Transport Canada

Transportation Safety Board says it has deployed a team of investigators look into the incident

Budget 2019: Five things to watch for in the Liberals’ final fiscal blueprint

Finance Minister Bill Morneau will release the Trudeau government’s final budget on Tuesday

New concussion guidelines launched for Canada’s Olympians, Paralympians

The guidelines will be in effect at this summer’s Pan American, Parapan American Games in Lima, Peru

Alphonso Davies doubtful for Canada game against French Guiana in Vancouver

Canada will be without injured captain Scott Arfield and veteran Will Johnson

Watchdog called after man who yelled racial slurs at B.C. vigil hurt during arrest

BC RCMP say man was ‘acting suspiciously’ at prayer vigil for victims of New Zealand mosque shootings

NDP’s Jagmeet Singh steps into the House of Commons, making history

Burnaby South MP becomes first visible minority to lead a federal party in the House of Commons

Most Read