LONDON: Global debt levels have climbed $500 billion in the past year to a record $217 trillion, a new study shows, just as major central banks prepare to end years of super-cheap credit policies.
World markets were jarred this week by a chorus of central bankers warning about overpriced assets, excessive consumer borrowing and the need to begin the process of normalizing world interest rates from the extraordinarily low levels introduced to offset the fallout of the 2009 credit crash.
This week, US Federal Reserve chief Janet Yellen has warned of expensive asset price valuations, Bank of England (BoE) Gov. Mark Carney has tightened controls on bank credit and European Central Bank (ECB) head Mario Draghi has opened the door to cutting back stimulus, possibly as soon as September.
Years of cheap central bank cash have delivered a sugar rush to world equity markets, pushing them to successive record highs. But another side effect has been explosive credit growth as households, companies and governments rushed to take advantage of rock-bottom borrowing costs.
Global debt, as a result, now amounts to 327 percent of the world’s annual economic output, the Institute of International Finance (IIF) said in a report late on Tuesday.
One of the most authoritative trackers of global capital flows, the IIF report highlighted “rollover” risks, especially in emerging markets that have borrowed in hard currencies such as euros and dollars.
Such debts will become costlier to service if Western interest rates rise and currencies strengthen.
While US interest rates have already been raised four times, the euro has surged to one-year highs after Draghi’s comments on Tuesday, while German 10-year government bond yields — the benchmark for euro-area borrowing — have doubled over the past two days.
The Fed too seems intent on continuing to tighten policy — Philadelphia Fed President Patrick Harker said this week balance sheet normalization should be put on “autopilot.”
And despite Britain’s tepid economy, several BoE rate-setters too voted this month to raise interest rates.
The IIF said the surge in indebtedness was largely down to a $3 trillion rise in debt levels across the developing world, which now has debt totaling $56 trillion. That is 218 percent of their combined gross domestic product (GDP), a 5-percentage point rise over year-ago levels, it said.
China accounted for $2 trillion of this rise, with its debt now at almost $33 trillion, data showed.
“Rising debt may create headwinds for long-term growth and eventually pose risks for financial stability,” the IIF said.
“In some cases, this sharp debt build-up has already started to become a drag on sovereign credit profiles, including in countries such as China and Canada.”
The report acknowledged that advanced economies had continued to deleverage, cutting total public and private debt by more than $2 trillion in the past year, but this was mainly due to the euro zone. Total US debt rose $2 trillion to more than $63 trillion in the first quarter of this year.
But even in the euro zone, household borrowing is at a post-crisis high, data showed this week. The BoE plans to soon publish tighter rules on consumer lending and is bringing forward checks on banks’ ability to cope with consumer loan losses.
But it is in the developing world that stresses are most likely to emerge, the IIF noted.
First, emerging hard currency-denominated debt rose by $200 billion in the past year — growing at its fastest pace since 2014 — and 70 percent of this was in dollars, its report found.
Second, emerging markets have a hefty debt repayment schedule with more than $1.9 trillion of emerging bonds and loans falling due by end-2018, and 15 percent of this denominated in dollars. The biggest redemptions were in China, Russia, Korea and Turkey, the IIF added.
“Rollover risk is high,” the report said.
Any significant central bank policy shift risks derailing emerging debt markets, which have delivered robust returns in recent years and are up 7-10 percent in dollar terms in 2017.
Global borrowing hits record $217 trillion: Report
Global borrowing hits record $217 trillion: Report
AI will never replace human creativity, says SRMG CEO
- Speaking to Maya Hojeij, senior business anchor at Asharq with Bloomberg, Jomana R. Alrashid expressed pride in SRMG platforms that had absorbed and adopted AI
RIYADH: Jomana R. Alrashid, CEO of Saudi Research and Media Group, highlighted how AI cannot replace human creativity during a session at The Family Office’s “Investing Is a Sea” summit at Shura Island on Friday.
“You can never replace human creativity. Journalism at the end of the day, and content creation, is all about storytelling, and that’s a creative role that AI does not have the power to do just yet,” Alrashid told the investment summit.
“We will never eliminate that human role which comes in to actually tell that story, do the actual investigative reporting around it, make sure to be able to also tell you what’s news or what’s factual from what’s wrong ... what’s a misinformation from bias, and that’s the bigger role that the editorial player does in the newsroom.”
Speaking on the topic of AI, moderated by Maya Hojeij, senior business anchor at Asharq with Bloomberg, the CEO expressed her pride in SRMG platforms that had absorbed and adopted AI in a way that was “transformative.”
“We are now translating all of our content leveraging AI. We are also now being able to create documentaries leveraging AI. We now have AI-facilitated fact-checking, AI facilities clipping, transcribing. This is what we believe is the future.”
Alrashid was asked what the journalist of the future would look like. “He’s a journalist and an engineer. He’s someone who needs to understand data. And I think this is another topic that is extremely important, understanding the data that you’re working with,” she said.
“This is something that AI has facilitated as well. I must say that over the past 20 years in the region, especially when it comes to media companies, we did not understand the importance of data.”
The CEO highlighted that previously, media would rely on polling, surveys or viewership numbers, but now more detailed information about what viewers wanted was available.
During the fireside session, Alrashid was asked how the international community viewed the Middle Eastern media. Alrashid said that over the past decades it had played a critical role in informing wider audiences about issues that were extremely complex — politically, culturally and economically — and continued to play that role.
“Right now it has a bigger role to play, given the role again of social media, citizen journalists, content creators. But I also do believe that it has been facilitated by the power that AI has. Now immediately, you can ensure that that kind of content that is being created by credible, tier-A journalists, world-class journalists, can travel beyond its borders, can travel instantly to target different geographies, different people, different countries, in different languages, in different formats.”
She said that there was a big opportunity for Arab media not to be limited to simply Arab consumption, but to finally transcend borders and be available in different languages and to cater to their audiences.
The CEO expressed optimism about the future, emphasizing the importance of having a clear vision, a strong strategy, and full team alignment.
Traditional advertising models, once centered on television and print, were rapidly changing, with social media platforms now dominating advertising revenue.
“It’s drastically changing. Ultimately in the past, we used to compete with one another over viewership. But now we’re also competing with the likes of social media platforms; 80 percent of the advertising revenue in the Middle East goes to the social media platforms, but that means that there’s 80 percent interest opportunities.”
She said that the challenge was to create the right content on these platforms that engaged the target audiences and enabled commercial partnerships. “I don’t think this is a secret, but brands do not like to advertise with news channels. Ultimately, it’s always related with either conflict or war, which is a deterrent to advertisers.
“And that’s why we’ve entered new verticals such as sports. And that’s why we also double down on our lifestyle vertical. Ultimately, we have the largest market share when it comes to lifestyle ... And we’ve launched new platforms such as Billboard Arabia that gives us an entry into music.”
Alrashid said this was why the group was in a strong position to counter the decline in advertising revenues across different platforms, and by introducing new products.
“Another very important IP that we’ve created is events attached to the brands that have been operating in the region for 30-plus years. Any IP or any title right now that doesn’t have an event attached to it is missing out on a very big commercial opportunity that allows us to sit in a room, exchange ideas, talk to one another, get to know one another behind the screen.”
The CEO said that disruption was now constant and often self-driving, adding that the future of the industry was often in storytelling and the ability to innovate by creating persuasive content that connected directly with the audience.
“But the next disruption is going to continue to come from AI. And how quickly this tool and this very powerful technology evolves. And whether we are in a position to cope with it, adapt to it, and absorb it fully or not.”
