Total Debt to GDP (%)

A country’s “total debt” includes government debt as well as the debt of financial institutions, non-financial businesses and households. For the 10 developed economies (Canada, France, Germany, Italy, Japan, Spain, South Korea, Switzerland, UK and US), total debt increased from 200% of GDP in 1995 to more than 300% of GDP by 2008.

By Tina Aridas – Project Coordinator: Alessandro Magno

* Including asset backed securities (ABS) US total debt would equal 350%-360%. Asset-backed securities are removed from McKinsey data since underlying mortgages and other loans are already included, so it would reflect a duplication within the data, according to McKinsey. Other data sources, including the FT, The Economist and Morgan Stanley, do include ABS in total debt figures.

Total Debt in Selected Countries around the World, latest data available, as percent of GDP, by sector

Data is from McKinsey Global Institute (MGI), "Debt and deleveraging: The global credit bubble and its economic consequences," January 2010.

Total Debt in Selected Countries around the World, 1980-2009, as percent of GDP, by sector

Click on the column heading to sort the table.

Debt consists of the outstanding financial liabilities arising from past borrowing. Debt may be owed to external or domestic creditors and typically, debt financing is in the form of loans or bonds. The debtor may be either a public (government) or private sector entity. Included in the “total debt” figure are liabilities of the government, the financial sector, non-financial business and households. It is most often presented as a percent of GDP in a given year.

Although Japan’s total debt to GDP was the highest of the developed economies in Q2 2009 (471%), the United Kingdom, with the second highest, experienced the largest percentage increase from 2000, with its ratio reaching 469% (due mainly to the growth in the financial sector). On the other hand, Japan’s total debt had stabilized somewhat, with government debt rising and private sector debt falling in the same period.

Spain, South Korea and France, too, had large increases in total debt relative to GDP. Although Spain’s government sector debt was reduced by the 2nd quarter of 2009, the country’s total debt has grown rapidly since 2000, reaching 366%. France’s total debt growth accelerated, also, and hit 323% of GDP in the same period. South Korea’s total debt growth was mostly in the financial institutions sector but was also strong in the non-financial business sector.

Italy’s government debt accounts for a substantial part of its total borrowing, and its total debt to GDP is above the median level of its peers. While Italy’s level is high, it is not anywhere close to Japan’s level, and according to consultants McKinsey Global Institute, Italy’s total debt levels are mitigated by its strong debt service capacity. Japan’s high level, however, is partially offset by high levels of financial assets and household savings.

US and Canadian total debt grew at a more moderate pace. Although US total debt reached 296% in Q2 of 2009, that was well below some other major economies and also was not as big a jump from 2000 levels as some other countries experienced. Households account for the largest share of total debt in both countries, as well as in Switzerland (whose households are among the most highly leveraged in the world).

However, US total debt is much higher if GSE (government sponsored enterprise) debt, including agency-backed mortgages, is included in the figure. Data from Morgan Stanley and from the Financial Times (both use figures from the Federal Reserve) puts total US debt at more than 350% if asset-backed securities issued by the financial sector are included. The Economist, in its June 26th 2010 issue, calculates US total debt as equal to 360% as percentage of GDP at the end of 2009. However, in the online version of the same edition the magazine uses a different methodology - removing asset-backed securities and putting US total debt at 300% at the end of 2009.

Please see below charts from Morgan Stanley and FT:

Morgan_Stanley_US_debt-trend-breakdown-WEB

FT_CHART_web4

Countries that did not experience a surge in total debt over the 2000-2008 period are Germany, Switzerland and the BRIC countries (Brazil, Russia, India and China). Germany’s total debt grew rapidly after reunification two decades ago but stabilized in 2000.

Of the BRIC countries, Russia has the lowest total debt level (concentrated in the non-financial business sector). India and Brazil’s total debt is dominated by government debt, while China’s borrowing is concentrated mostly in the non-financial business sector. Total in these four economies averaged 137% of GDP at the end of 2008.

Total-debt-to-GDP ratios are only one part of the total picture. Whether the borrowing is from domestic creditors or foreign creditors is an important factor. Foreign borrowing accounts for a large share of total debt in Europe, due to the integration of countries in the Euro area. Greece and Portugal have a large portion of their debt in the hands of foreign creditors. By contrast, Japan’s government debt (which is the largest segment of that country’s overall debt) has traditionally been owned mostly by domestic investors; that, however, has been changing, as the country’s household savings rate has declined. Like Japan, a large portion of the debt of both Italy and Belgium is in the hands of domestic creditors.

Sources