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McKinsey Global Inst @McKinsey_MGI
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1/ A decade after the #globalfinancialcrisis, what’s changed? And what hasn’t? We recently surveyed the state of the global financial system: Take a quick tour with us in this #thread.
2/ After the #GreatRecession, many expected a wave of deleveraging. But it never came. The combined global debt of governments, nonfinancial corporations, and households is up by $72 trillion since the end of 2007.
3/ Consistent with history, a debt crisis that began in the private sector shifted to governments in the aftermath. From 2008 to mid-2017, global govt debt more than doubled. A line chart shows public debt rapidly increasing during 2008-2016. A bar chart shows debt-to-GDP ratio of private debt rising from 144 in 2000 to 164 in 2007 to 164 in 2017.
4/ China alone accounts for >1/3 of growth in all types of global debt since the crisis. Its total debt has increased by >5x over the past decade, going from 145% to 256% of GDP.
5/ Household debt is now down in the countries at the core of the 2008 crisis. But it’s climbed higher than pre-crisis levels in other advanced economies. One chart shows household debt to GDP rising pre-crisis, then falling post-2008 for UK, US, Portugal, Spain, Germany and Ireland. The second shows the same ratio steadily climbing from 2000 to 2017 for Australia, Norway, Canada, South Korea, Sweden, Finland, France, and Greece.
6/ Globally, nonfinancial corporate debt has more than doubled over the past decade to hit $66 trillion in mid-2017.

Two interesting departures from the past...
7/ First, 2/3 of the growth in corporate debt has come from developing countries, China (and esp. its construction/RE sector) is a big driver here.
8/ Second, while corporate lending from banks has been nearly flat since the crisis, corporate bond issuance has soared. A bar chart shows the amount of global nonfinancial corporate bonds outstanding by region growing from $2.4 trillion total in 2000 to $11.7 trillion in 2017.
9/ Today banks are better capitalized and have scaled back proprietary trading & foreign claims. Most are less profitable. A line graph shows return on equity and price-to-book ratio is lower today than pre-crisis for developed-country and emerging-economy banks.
11/ Since 2007, gross cross-border capital flows have fallen by half. FDI, which is long-term in nature, now a greater share. Less money moving across borders = lower risk of global contagion. Global cross-border capital flows spiked before the crisis, then dropped dramatically. They have declined 53% since the peak.
11/ Do we have to worry about another #globalfinancialcrisis? Yes and no. The world addressed many of the risks behind the 2008 meltdown, but some new ones bear watching.
12/ Growth of corp debt in developing countries poses a risk, esp. if denominated in foreign currencies. We estimate 1/4 of corporate issuers in developing markets are at risk of default today.
13/ Overall, credit quality in the corp bond market is deteriorating. A record amt coming due over next 5 years, with interest rates rising.
14/ Other risks to watch? Localized housing bubbles. China’s overextended property sector & the unsustainable finances of its local gvts.
15/ The good news is most of the world’s pockets of debt are unlikely to pose systemic risk. Problems would cause pain for investors and lenders, but probably not a 2008-style meltdown.
17/ One thing we know from history: the next crisis probably won’t look like the last one. Biggest lesson of 2008 = Be vigilant when times are still good.
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