Deleveraging - this is a bad word during the painful process. There are several things that mean for the world economy more than ever, talking about how quickly developed countries could cut their debts. History suggests that severe financial crises are usually accompanied by long periods of debt relief, during which credit falls relative to the size of the economy. At this time the process repeats. Banks plummeting balances. Consumer lending in the U.S. declined 10 months in a row, which is the most extensive and long drop in history. But how far can this process go?
A new report McKinsey Global Institute (research arm of the consulting firm), is trying to answer this question. The report begins with a comparison of recent changes in the level of debt in 10 developed economies and 4 developing countries. Value of total debt to GDP (including debt created by homeowners, government, non-financial organizations and the financial industry) vary greatly from nearly 300% in the U.S., where it is lower than in many other countries. There are a few exceptions, such as Germany and Japan, which are the most developed countries, shows an increase over the last decade. Britain and Spain - is the most extreme of the country, shows an increase in total debt by more than 150% for each country, up 465% and 365% respectively.
Debts have grown up in different places and in different countries. With the exception of Japan, which has to deal with the consequences of its own stock market crash, the public debt to GDP ratio, is at one level or falls. With the exception of commercial property and buy assets with leverage, the world's largest corporations also vvyazli in debt. Corporate leverage, measured as debt to equity ratio was stable or falling in most countries before the crisis. It is the duty of the financial sector as a proportion of GDP, grew in most countries, especially in Britain and Spain, but some pockets of funding (such as investment banks) have shown a significant increase in leverage. Outside of Germany and Japan, where the shoulder was reduced, the greatest increase was in domestic households. Most developed countries are faced with more than 40% increase in the ratio of household debt to their income. Even there, however, growth was not similar. In the U.S. the majority of the debt created by middle-income households. In Spain - low.
Data provided by McKinsey, probably represent one of the most concentrated areas of credit costs, rather than the debt burden of the entire economy. As a result, the processes of debt reduction will vary in different sectors and countries. The estimated ratio of total debt to GDP, deleveraging (reduction of leverage) has just begun. In June 2009, this ratio fell only in the U.S., Britain and South Korea, while not so much. However, the composition of debt has changed dramatically, as government loans increased, while private debt fell. The financial sector declined the most. By mid-2009, the financial credit lever in most countries has fallen to an average 15 years before the crisis.
To determine where the compression is most likely, the study investigated how far can the growth of debt in different sectors and countries, taking into account the historical averages. Also take into account the ability of borrowers to meet their own debts and vulnerability to loss of income. On this basis, it can be assumed where there is a high, medium or low probability of deleveraging in the next few years. Half of the 10 developed countries in the sample record is one or a few sectors where there is a high vulnerability to reduce debt. It is not surprising that these sectors include households in the United States, Britain, Spain and, to a lesser extent, Canada and South Korea, as well as commercial real estate in the United States, Britain and Spain. Given the high risk of corporate and financial deleveraging, from Spain to be the most difficult way. The list contains no countries that have a high chance of reducing the national debt over the next few years.
Change speed
Determining the probability of further deleveraging is not the same, that the measurement of its likely impact. To do this, the study turns to history. Was found 32 examples of prolonged deleveraging (at least 3 years in a row, during which the ratio of total debt to GDP fell by no less than 10%) in post-crisis period. In some cases, the debt declined due to default. In others it was declined due to inflation. But about half the cases, which the authors report, regarded as the most appropriate point for comparison, the deleveraging going through a long period of contraction, when it grew less rapidly than production. This information is sobering. Usually deleveraging began two years after the crisis began and ended in 6-7 years. In almost every case, the reduction of production observed in the first 2 or 3 years. (Countries that have pledged or subjected defaulted debts of inflation faced primarily with a strong recession, but had a higher growth of production in the end than the "Protracted belt").
Worse, there are several reasons why the current mess could be longer than in previous periods. First, the extent of debt above. The biggest factor (286%) of debt in the group "zatyagivateley zone" was in Britain in the postwar period. Today, more than half the developed countries in the sample McKinsey in arrears of more than 300% of GDP. Secondly, the number of countries affected at the same time, means the difficulty of achieving a rapid increase in exports, which in the past supported the production. Thirdly, a significant increase in public debt with the weakening of demand in the short term, increases the total debt, which will be reduced. When the private deleveraging ends, it is necessary to reduce public spending.
In theory it sounds simple. In practice it would be devilishly difficult to get the desired balance. Investors may worry about the national debt long before the end of non-state reduction of debt, leading to the need to tighten the set screws at a time. The most painful blows deleveraging can be expected ahead.
The Economist
January 14
January 14
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