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Private sector debt - not yet entering the danger zone

​Rising global interest rates are set to push up private sector debt service ratios (DSRs) in most economies over the next year. This matters because some economies already have high DSRs and there was a strong link in the last downturn between high initial DSRs and subsequent deleveraging pressures. Based on our forecasts for interest rates, most advanced economies will see DSRs rise over the next year, including a number where DSRs are already relatively high at 20-25% of income. At the same time, a few emerging economies will actually see their DSRs fall. Moreover, for most economies, DSRs a year from now will remain below the ‘danger zones’ we identify based on historical evidence. Importantly this is true for most large economies including the US, Germany, Japan and the UK. But economies in the ‘danger zone’ will include Hong Kong, Canada, China, Sweden, Australia, France and Turkey.

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