Global debt reached a record 238 per cent of GDP this year. Government debt ratios rose sharply worldwide during the financial crisis; since then corporate borrowing has increased but now household indebtedness is edging up again.

That poses risks for the world economy, but we need to look at individual countries to see if this is household, corporate or government borrowing. And while debt levels are important, so are servicing costs, who owns it, and the currency it is in.

Canada, Switzerland and Australia have high household debt and could see consumption fall if income growth slows or unemployment rises.

Sweden, France and Norway have elevated corporate debt and face seeing companies rein in investment and employment. But although a disproportionate share of China’s borrowing is corporate, much is within state-owned enterprises while private companies have deleveraged in recent years.

By contrast, government is the big borrower in Italy and Brazil. Given how stretched monetary policy is in most of the world, countries without adequate fiscal room could find it harder to stimulate their way out of any downturn. Japanese government borrowing is high too, but Spain, France and the US aren’t far behind.

However, debt-service costs are as important as debt levels, especially for households. Canada’s personal debt-service ratio has risen sharply because of interest-rate rises but rate cuts mean Australia’s will fall, removing a possible drag to consumption.

More than 10 per cent of household income goes on interest in Norway, Korea, Canada, Switzerland, Sweden, Malaysia and the UK, making these countries particularly vulnerable to a downturn in growth and incomes because consumer spending could dry up quickly.

In many emerging markets the issue may not be the level of debt (which typically is low) but who owns it and the currency it is in, plus the ability to service it through steady growth. Foreign investors still own huge shares of some governments’ bonds, leaving those countries vulnerable to capital outflows and global risk sentiment.

We saw this risk play out 2018, with central banks having to respond with aggressive monetary tightening. Peru, the Czech Republic, South Africa, Indonesia and Mexico all remain vulnerable, with foreigners owning more than 30 per cent of the local-currency government-bond market.

And many emerging countries – including Chile, Turkey, Hungary and the Czech Republic – have a large share of GDP as corporate debt denominated in overseas currency, making the ability to repay exposed to large exchange-rate swings.

But although China has high corporate debt, it is denominated in renminbi and locally owned, protecting it from currency moves and investment flows. Mexico has low corporate debt – but 54 per cent is dollar-denominated. Indonesia’s is 41 per cent in US dollars.

As global growth continues to slow, the risks associated with high debt in the global economy could become more apparent. While it may not trigger the next recession, it could play a role in intensifying any slowdown. Central banks should consider financial stability concerns rather than simply trying to fuel growth at all costs.

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