Bank Of Canada Deputy Says High Debt Levels Holding Back Global Growth

Bank of Canada Senior Deputy Governor Carolyn Wilkins said Thursday that the accumulation of global debt over the past decade is holding back economic growth and creating vulnerabilities in the world's financial systems.

The global financial system is in better shape today than it was in 2007 before the last financial crisis, but uncertainties caused by ongoing U.S.-China trade tensions could cause global economic growth to slump further, Wilkins said in a speech delivered 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 said.

"The global development that concerns me the most, though, is rising debt," she said, adding that the combined global debt owed by governments, businesses and households now amounts to $240 trillion U.S., which is $100 trillion U.S. higher than before the 2008 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." Debt levels around the world have grown largely because of the long stretch of extremely low borrowing rates that was necessary to help global growth build fresh momentum after the 2008 recession, she said.

"The downturn would have been even deeper and more painful without these decisive policy responses," said Wilkins. "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 levels, which now stands at more than 178% of disposable income, is the central bank's top domestic financial vulnerability, said Wilkins.

"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.