Global debt rises to levels of Napoleonic wars, says World Economic Forum president

Global debt levels are approaching those last seen in the 1820s and there is a risk of “stagflation” for advanced economies, warns WEF president Borge Brende.

World Economic Forum (WEF) President Borge Brende has weighed in on the bleak outlook for the global economy, saying the world could face a decade of low growth if the necessary economic measures are not taken.

Speaking at a special WEF meeting on “cooperation, development and energy” in Riyadh, Saudi Arabia on Sunday, he pointed out that global debt rates are approaching levels last seen in the 1820s and there is a risk of “stagflation” for advanced economies.

“Global growth for this year is estimated at 3.2%. It’s not the worst rate, but it’s not something we’re used to — the global growth rate has been above 4 percent for decades,” he told CNBC, adding that there was a risk of a similar slowdown that of the 1970s in some economies considered strong.

“We can’t go into a trade war, we have to keep trading with each other,” he explained when asked how we can avoid a period of low growth.

Recognizing that world trade will move to a new level, where trade will be between countries that maintain friendly relations or enjoy geographical proximity, Brende insisted on the issue of debt. “Next, we have to deal with the problem of global debt. We haven’t had anything like this since the Napoleonic wars, we are approaching 100% of global GDP in debt,” he stressed.

He advised governments to reduce their debts and take appropriate fiscal measures to avoid a recession-causing situation. Speaking of “persistent inflationary pressures”, he predicted that generative artificial intelligence could be an opportunity for the developing world.

His warning is consistent with a recent report by the International Monetary Fund, which noted that global public debt rose to 93 percent of GDP last year and is nearly 10 percent higher than pre-pandemic levels.

The IMF predicted that global public debt could approach 100% of global GDP by the end of the decade. Highlighting high debt levels in China and the US, the IMF sees lax fiscal policy in the US putting pressure on interest rates and the dollar, raising funding costs around the world – exacerbating instabilities that already exist.

In April, the IMF revised its forecast for global growth upwards to 3.2%, commenting that the global economy had proved “surprisingly resilient” despite inflationary pressures and changes in monetary policy.

Brende said today that the biggest risk to the global economy is geopolitical, citing the situation in the Middle East.

“There is so much unpredictability and the situation can easily get out of hand. If Israel and Iran were to escalate this conflict, we could see the price of oil at $150 overnight. And of course that would be very damaging to the global economy.”