Growing debt: A potential obstacle in the global recovery?

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Roger A. Early

  • Senior Managing Director, Chief Investment Officer – US Fixed Income
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Paul A. Matlack

  • Managing Director, Senior Client Portfolio Manager
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Graham McDevitt

  • Division Director, Global Strategist
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After nearly a decade of extreme monetary policies, barely visible inflation, and meager economic growth, some signs of economic improvement going into 2018 have finally given investors something to cheer about. Gross domestic product (GDP) growth in 2017 improved in many economies. Equity markets have been strong, albeit with some volatility in early 2018, and the effects of US tax reform and other fiscal policies appear to be stimulative.

Yet below the surface of this burgeoning economic recovery lies one important factor: growing levels of global debt. Could this global debt potentially trip up the global recovery? Is it unlikely to be tackled in the short term, and therefore less threatening? Or is it a headwind that risk-aware investors should account for? This commentary paper looks at the debt issue, including the current state of the overhang, what it may portend, and practical portfolio considerations in a debt-laden market.

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