It is tempting to think that the global economy has become immune to shocks despite multiple ongoing physical conflicts, trade wars and other trauma that have characterised the Donald Trump era. Growth has continued, after all, albeit at a reduced pace, and financial markets are still riding high.
This apparent economic resilience comes at a high cost, however. This growth is being “bought” by borrowing on a grand scale by governments, companies and households in both advanced and emerging economies, not least in China, Japan and the United States.
The rising level of international debt has been commented on and cautioned about for some time by official bodies such as the International Monetary Fund (IMF). Even so, warnings have reached a new pitch recently, including in a report from the Institute of International Finance (IIF).
The report, titled “Seismic Shifts in Global Debt Markets”, comes from a financial industry body that is not given to hyperbole. It notes that global debt rose by more than US$21 trillion to a record US$338 trillion in the first half of 2025, its sharpest rise since emergency fiscal reactions to the Covid-19 pandemic led to an unprecedented build-up in global debt five years ago.
A major factor driving the sharp and ongoing build-up in government debt in advanced economies is the need to increase defence spending. The pressure to do so comes from the Trump administration and the perceived need to keep pace with rival nations.
In both advanced and emerging nations, governments are also having to borrow more to finance rising healthcare spending demands created by demographic factors, while both governments and companies need to borrow more to meet the cost of natural disasters caused by climate change. Borrowing needs in many advanced economies remain well above pre-pandemic levels, with no apparent signs of a reversal in this trend.