Next Debt Crisis Might Affect Emerging Market Corporate Sector

Global debt has reached $217 trillion, equal to a record 325 percent of global gross domestic product. “High levels of debt do not in themselves indicate an impending crisis,” explains Anthony Rowley, author and long-time business editor. “But when a dramatic surge in borrowing is followed by a sudden, and almost certainly sustained, rise in interest rates, the cost of servicing debt threatens to outrun the ability of borrowers to repay.” This could be especially true for China and other emerging markets lured by a ready supply of low-interest loans since the 2008 global financial crisis. At the same time, investors around the globe searched for high yields and shrugged about potential risks in the emerging markets. As the US Federal Reserve continues to hike interest rates, some corporate borrowers could struggle to secure new financing. Rowley notes that downgrading of corporate credit ratings in emerging markets has accelerated in recent months. If the difficulties trigger yet another debt crisis, governments will have to make tough decisions on another round of bailouts. – YaleGlobal