Gulf Business/Aarti Nagraj: tGlobal crisis looming, but ‘unlikely to be as bad as 2008’ – S&P

Gulf Business


Global crisis looming, but ‘unlikely to be as bad as 2008’ – S&P

While global debt levels are higher than a decade ago, contagion risk is lower, finds report
Aarti Nagraj
Thursday 14 March 2019


A global credit downturn is looming, but even it happens, it is “unlikely to be as dramatic as in 2008-2009”, according to a report from S&P Global Ratings.

While global debt levels are higher than a decade ago, contagion risk is lower, the report stated.

“Global debt is certainly higher and riskier today than it was a decade ago, with households, corporates, and governments all ramping up indebtedness,” said S&P Global Ratings credit analyst Terry Chan.

“Although another credit downturn may be inevitable, we don’t believe it will be as bad as the 2008-2009 global financial crisis. That’s because the increased debt is largely driven by advanced-economy sovereign borrowing and domestic-funded Chinese companies, thus mitigating contagion risk.”

According to the report, global debt has risen by about 50 per cent since the last global financial crisis, led by major-economy governments and Chinese non-financial corporates.

In absolute terms, among governments, the US saw the highest growth in debt by $10.6 trillion over the past decade, followed by China at $5 trillion, and the Eurozone, at $2.8 trillion.

A survey of nearly 12,000 corporates globally by S&P also found the proportion of companies having aggressive or highly leveraged financial risk profiles has risen to 61 per cent.

In particular, Chinese corporate indebtedness grew by two-thirds, to 155 per cent of GDP over the past decade.

Meanwhile global debt-to-GDP ratios have risen to more than 231 per cent, compared with 208 per cent in June 2008.

Despite higher leverage, the risk of contagion is “mitigated by high investor confidence in major Western governments’ hard currency debt”, the report said.

“The high ratio of domestic funding for Chinese corporate debt also reduces contagion risk, because we believe the Chinese government has the means and the motive to prevent widespread defaults,” it added.

However, the risks are also elevated.

Due to extremely low interest rates, investor flows have moved to speculative-grade and non-traditional fixed-income products in the last 10 years.

“These markets tend to be less liquid and more volatile, and could seize in the event of a financial shock or panic,” S&P said.

Other risk areas include derivatives, exchange-traded funds, private debt, leveraged finance and certain types of infrastructure.

S&P’s economists recently revised their assessment of the risk of a US recession in the next 12 months to 20 per cent-25 per cent, up from 15 per cent -20 per cent late last year.

“A perfect storm of realised risks across geographies and asset classes could trigger a systemically damaging downturn,” said S&P Global Ratings analyst Alexandra Dimitrijevic.

“This downside scenario reflects an increased reliance on global capital flows and functioning secondary market liquidity.”
Also from our network
We've never thought about it – Juventus rule out Pogba return
Snapped: Celebrities spotted in the UAE this week
HH Sheikh Hamdan in Switzerland to represent UAE at World Economic Forum
Queen Rania wears streatwear brand Off-White and Dubai-based handbag this week
Zayn Malik confuses fans after declaring his love to Gigi Hadid in a Tweet
Saudi Arabia says it is too early to restore ties with Syria - Gulf Business
Kuwait plans to pass first 'pro-expat' law in nine years - report - Gulf Business
UAE airlines resume operations to Pakistan - Gulf Business
ALSO READ
Dubai stock market could record its worst year since 2008 – report
Dubai stock market could record its worst year since 2008 – report
Dubai’s Property Prices Soar But Still Lower Than 2008
Dubai’s Property Prices Soar But Still Lower Than 2008
Eurozone Crisis Is Worst Global Risk
Eurozone Crisis Is Worst Global Risk
GCC Flinches At Debt Crisis
GCC Flinches At Debt Crisis
Is Another Property Bubble Looming Over Dubai?
Is Another Property Bubble Looming Over Dubai?
Matein Khalid: The Crimea Crisis And Russian Equities
Matein Khalid: The Crimea Crisis And Russian Equities
UAE Bad Loan Provisions Drop For First Time Since Crisis
UAE Bad Loan Provisions Drop For First Time Since Crisis
UAE Car Sales To Top Pre-Crisis Peak
UAE Car Sales To Top Pre-Crisis Peak
Lists
Top 100 GCC Companies 2018
Top 100 most powerful Arabs 2018
Top 50 GCC Banks 2017
Top 100 Most Powerful Arabs 2017
Top 100 GCC Companies 2016
Top 50 GCC Banks 2016
Advertisement
Most Read
Kuwait plans to pass first 'pro-expat' law in nine years - report
Saudi prince passes away
Saudi clarifies holiday entitlement for private sector employees
Saudis shoot down drone aimed at kingdom, civilians injured
UAE cabinet adopts regulatory framework to issue long-term residence visas
Flydubai says 'confident' about the airworthiness of its Boeing 737 fleet
Saudi telecoms firm STC, Huawei complete indoor 5G test
UAE inclusion in EU tax blacklist down to poor communication - Al Ghurair
Saudi Arabia says it is too early to restore ties with Syria
UAE, Kuwait and Oman ban operations of Boeing 737 MAX jets
Editor's Picks
Dubai reveals five new initiatives to support and cut costs for SMEs
Dubai's DFSA bars expat from working in DIFC for fraud
14,000 social media accounts shut down in Dubai for selling counterfeit goods
UAE Presidential Palace to open to the public
Sign up for our daily newsletter
Get the day’s biggest stories straight in your inbox
SUBSCRIBE
Advertisement

    Advertise With Us
    Privacy Policy
    Contact us
    Subscribe

Copyright © 2019 by Gulf Business.