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COVID response drives $24 trillion surge in global debt: IIF

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COVID response drives $24 trillion surge in global debt: IIF 1

By Marc Jones

LONDON (Reuters) – The COVID pandemic has added $24 trillion to the global debt mountain over the last year a new study has shown, leaving it at a record $281 trillion and the worldwide debt-to-GDP ratio at over 355%.

The Institute of International Finance’s global debt monitor estimated government support programmes had accounted for half of the rise, while global firms, banks and households added $5.4 trillion, 3.9 trillion and $2.6 trillion respectively.

It has meant that debt as a ratio of world economic output known as gross domestic product surged by 35 percentage points to over 355% of GDP.

That upswing is well beyond the rise seen during the global financial crisis, when 2008 and 2009 saw 10 percentage points and 15 percentage points respective debt-to-GDP jumps.

There is also little sign of a near-term stablisation.

Borrowing levels are expected to run well above pre-COVID levels in many countries and sectors again this year, supported by still low interest rates, although a reopening of economies should help on the GDP side of the equation.

“We expect global government debt to increase by another $10 trillion this year and surpass $92 trillion,” the IIF report said, adding that winding down support could also prove even more challenging than it was after the financial crisis.

“Political and social pressure could limit governments’ efforts to reduce deficits and debt, jeopardizing their ability to cope with future crises.”

“This could also constrain policy responses to mitigate the adverse impacts of climate change and natural capital loss,” it added.

EUROPE DEBT

Debt rises were particularly sharp in Europe, with non-financial sector debt-to-GDP ratios in France, Spain, and Greece increasing some 50 percentage points.

The rapid build-up was mostly driven by governments, particularly in Greece, Spain, Britain and Canada. Switzerland was the only mature market economy in the IIF’s 61-country analysis to record a decline in its debt ratio.

In emerging markets, China saw the biggest rise in debt ratios excluding banks, followed by Turkey, Korea, and the United Arab Emirates. South Africa and India recorded the largest increases just in terms of government debt ratios.

“Premature withdrawal of supportive government measures could mean a surge in bankruptcies and a new wave of non-performing loans,” the IIF said.

However, sustained reliance on government support could pose “systemic risks” as well by encouraging so-called ‘zombie’ firms – the weakest and most indebted corporates – to take on even more debt.

(Reporting by Marc Jones; Editing by Toby Chopra)

 

Finance

Elon Musk says bitcoin is slightly better than holding cash

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Elon Musk says bitcoin is slightly better than holding cash 2

(Reuters) – Tesla Inc CEO Elon Musk on Thursday said that owning bitcoin was only a little better than holding conventional cash, but that the slight difference made it a better asset to hold.

“However, when fiat currency has negative real interest, only a fool wouldn’t look elsewhere,” Musk said in a tweet. “Bitcoin is almost as bs as fiat money. The key word is ‘almost’.”

He also defended Tesla’s action to invest in bitcoin, saying that the difference with cash made it “adventurous enough” for the S&P 500 company to hold the cryptocurrency.

Tesla’s $1.5 billion bitcoin purchase set the cryptocurrency soaring toward this week’s record peak above $50,000 while Musk’s recent promotion of dogecoin on Twitter also lifted the price of that cryptocurrency.

Bitcoin was steady just below a record peak of $51,284 on Friday.

(Reporting by Aishwarya Nair and Shubham Kalia in Bengaluru; Editing by Sam Holmes)

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Bitcoin’s record price unsustainable without lower volatility – JPMorgan

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Bitcoin's record price unsustainable without lower volatility - JPMorgan 3

LONDON (Reuters) – Bitcoin’s charge to a record north of $50,000 isn’t sustainable unless the cryptocurrency’s price swings cool down quickly, JPMorgan analysts said in a note.

The world’s biggest digital currency hit a record of $51,300 on Wednesday after smashing the $50,000 mark for the first time a day earlier, fuelled by signs it is winning acceptance among mainstream investors and companies.

Bitcoin’s three-month realised volatility, or actual price moves, is 87% versus 16% for gold – an asset proponents say it could threaten, the U.S. investment bank said in a note published on Tuesday.

The value of all bitcoin in circulation has swollen to $900 billion from $200 billion in September, the analysts said. The $700 billion jump has come the back of a total flow of just $11 billion from institutional investors into major trusts and futures markets.

Bitcoin’s limited supply – based on “miners” producing a set number of new coins – has led to a holders charging a premium on bitcoin coming to market, JPMorgan said. Retail flows may have also magnified institutional flows, it added.

(Reporting by Tom Wilson; editing by Thyagaraju Adinarayan)

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UK inflation rises to three-month high of 0.7%

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UK inflation rises to three-month high of 0.7% 4

By David Milliken and William Schomberg

LONDON (Reuters) – British inflation rose a little more than expected in January as the country went back into a coronavirus lockdown, pushed up by higher food prices and less discounting of household goods such as sofas, official data showed on Wednesday.

Consumer prices rose 0.7% in annual terms after a 0.6% increase in December, the Office for National Statistics said.

A Reuters poll of economists had pointed to the annual rate remaining at 0.6%.

“Inflation rose slightly in January, with food prices increasing. Household goods also pushed up prices with less discounting this year on items such as bedding and settees,” ONS statistician Jonathan Athow said.

Food and drink prices rose by 0.6% between December and January – compared with a 0.2% fall over the same period a year earlier – and furniture and household goods dropped by 1.5% compared with a fall of 3.3% a year earlier.

Clothing and footwear prices fell by 4.9% on the month – the biggest drop between December and January in seven years – and recorded a 3.8% annual fall.

The ONS said around 8% of the prices it would normally collect were unavailable, a smaller number than in November.

Inflation has been stuck below the Bank of England’s 2% target since mid-2019 and the coronavirus lockdowns pushed it close to zero last year as the economy tanked.

Earlier this month, the BoE said it expects inflation to pick up quite sharply towards its 2% target in the spring as last year’s emergency cut in value-added tax expires and global oil prices rise on expectations of recovery.

Economists also think prices of some imported products will rise because of Britain’s new, less open trading relationship with the European Union which led to disruption and delays at ports last month.

The ONS said it had seen no evidence that new Brexit-related custom fees and transport costs had pushed up consumer prices in January.

The BoE has stressed it will be in no hurry to start removing its huge stimulus for Britain’s COVID-weakened economy, saying it will wait for evidence of significant progress towards hitting the 2% inflation target sustainably.

A core version of the CPI, excluding volatile fuel and food prices, held steady at 1.4%.

The ONS said factory gate prices fell again, dropping by 0.2% on the year, while the measure for core output prices rose by 1.4%.

(Reporting by William Schomberg and David Milliken)

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