Like overstretched American homeowners, governments and companies across the globe are groaning under the weight of debts.
Debt vs. GDP
Governments and companies around the world are going further and further into debt. The statistic used most often to evaluate this condition is the relationship between GDP and debt.
GDP is gross domestic product, which is sometimes called gross domestic income. The term refers to a measurement of a country’s economic production and includes the market value of final goods and services made in one year within the boundaries of that country.
GDP is calculated by summing up production of final goods for consumption, investment in assets, and government spending plus the difference of exports minus imports. The GDP report comes out at the end of each quarter.
The main idea is growth. If GDP is growing the economy is improving. Historically growth has averaged about 2.5-3% yearly, but it swings broadly from year to year.
Since every country is a different size and uses different currency, giving GDP as a number is somewhat meaningless. The comparison of debt to GDP creates a ratio that can be used to compare one nation to another.
First, considering public debt, the numbers are startling. Germany has long been the bastion of fiscal rectitude in Europe, and even there government debt is on the rise. The German government debt outstanding is expected to increase to the equivalent of 77 percent of the nation’s economic output next year from 60 percent in 2002. In Britain, that figure is expected to more than double over the same period, such that Britain’s debt will be more than 80% of GDP.
Ireland’s debt for 2010 is expected to rise to 70% of GDP, where it was 60% in 2007. Latvia, in northeastern Europe, has had a tremendous increase in debt from 9% in 2007 to what is expected to be 50% in 2010.
Corporate debt also surged over the last five years. $200 billion of corporate debt is coming due this year or next year. It is estimated that companies in Russia and the United Arab Emirates account for about half of that borrowing.
Corporate borrowing in Russia for the years 2006-2008 equaled $220 billion, which is 13% of GDP. Corporate debt in the Emirates for 2006-2008 was $135 billion, totaling 53% of the GDP. Corporate borrowing in Turkey for the years 2006-2008 equaled $72 billion, which is 10% of GDP. Corporate debt in the Kazakhstan for 2006-2008 was $44 billion, totaling 44% of the GDP.