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Our 2017 Macro Health Check flagged Turkey and Argentina as the world’s most vulnerable economies. They remain high on the 2018 list but are joined by the US, while South Korea’s financial stability is most worrying and Poland and Spain are growing unsustainably.

The main international concern is debt. Global borrowing has been rising steadily for years but the headline figure masks many pockets of debt in both developed and emerging markets, and within household, corporate and government sectors.

In 2018, foreign-currency corporate debt became a big issue for Turkey. Although household and public-sector borrowing is low, companies levered up rapidly after the financial crisis, pushing their debt to almost 70 per cent of GDP. Most borrowing was in foreign currencies and the weakening lira has massively increased companies’ hard-currency debt stock.

Elsewhere, debt presents different problems. Developed countries’ debt levels exceed emerging economies’ but are distributed more equally between households, companies and government. However, in the emerging world, debt is rising quickly – especially in China – and heavily concentrated outside on non-financial companies.

In the developed world, smaller European nations stand out, partly because of high financial-sector borrowing. But while many smaller countries have high private-sector debt, Japan and Southern Europe are dominated by public-sector borrowing.

Change in debt matters as well as the level, though. There have been sharp rises in Chinese and Canadian corporate borrowing plus Norwegian and South Korean household debt, while most of Europe has steady degeared over recent years – especially Spain.

Low interest rates, steady growth and booming property markets have encouraged household borrowing, including in Australia, Sweden and New Zealand. But Sweden, where 70 per cent of mortgages are variable-rate, would be hit harder by higher interest rates; most Australian debt is held by high earners, not vulnerable low earners.

Systemic risks are also limited in South Korea, despite household debt rising from 81 per cent 96 per cent of GDP in five years because it is focused in high-income families and covered by assets. And although Swiss household debt is 129 per cent GDP, assets again well exceed liabilities, reducing the financial-stability risk.

However Norway, China and South Korea have seen debt-to-GDP ratios rise sharply without the same increase in asset prices.

China’s state-owned enterprises account for most of its increased indebtedness: its private sector has already deleveraged, allowing renewed investment. France, though, has high corporate debt, including property companies making acquisitions, and would be vulnerable to higher interest rates or a weaker business outlook.

Rising government debt is a problem for countries with large structural deficits and low potential growth rates. Highly-borrowed Italy, France and Japan all need to close their deficits. But the United States’ vulnerability stems from widening budget and current-account deficits while its growth runs well above potential.

If currency weakness exposed Turkey’s problems this year, the future risk triggers for other countries could be rising interest rates, trade tensions or slowing emerging economies. High borrowing could amplify downturns in countries where debt levels are high or are rising sharply.

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