Global debt surpasses $324 trillion – is the world facing a debt bomb?

Jonathan Edwards

The Institute for International Finance released a report last month indicating that global debt in the first quarter of 2025 increased by $7.5 trillion to a new record high of $324 trillion.

In the first quarter of this century, global debt has more than quadrupled. In comparison, global GDP in 2024 was an estimated $110 trillion per annum. Accumulatively therefore governments, households and businesses have borrowed approximately three times economic output.

Furthermore, analysts have reduced global economic growth projections for 2025 to 2.5%, a 0.4% decrease compared to 2024. At the risk of sounding like a doom prophet, none of these figures sound particularly sustainable.

Meagre levels of economic growth are being financed by accelerating levels of debt.

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Financial crash

Two seismic events this century have exacerbated matters. Firstly, the great financial crash in the first decade of the century and the policy response of Central Banks to put their respective economies on the life support of ultra loose monetary policy. Its impact was to encourage borrowing across all sectors, particularly amongst households in western countries who had to take on ever increasing mortgage debt.

This was followed by the pandemic which required an expansive fiscal response by governments to support lockdown policies.

Geopolitical instability is also a key factor resulting in increased arms spending, humanitarian support, commodity inflation and trade dislocation. Throw in US trade war strategy and reciprocation and it is not difficult to conclude that a reckoning is coming sooner rather than later.

It’s not just developed countries facing the strain: the International Monetary Fund estimates that 60% of low-income countries are in a precarious position.

Although their proportion of government debt is far less than more advanced countries, the poorest nations on earth pay a far higher premium on their debt. A United Nations report indicates that 3.3bn people live in countries who spend more on debt interest than on education and health.

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Trump trough

Financial markets happily ticking along, despite the Trump trough, is not an indication that everything is OK. As economic history tells us, when confidence evaporates everything can collapse like a pack of cards.

The severity of the situation will require careful handling and global coordination as any solution will inevitably require debt restructuring if a soft landing is to be secured as opposed to a faceplant.

The populist right has developed a narrative for the times based on economic nationalism. It is most definitely the wrong prognosis and diagnosis; however, politics is fought in perception and not fact.

Progressives face an unenviable challenge of composing a narrative for the global situation which domestic populations can grasp and support - otherwise they will be left defending a doomed status quo.

Jonathan Edwards was the MP for Carmarthen East and Dinefwr 2010-24