Raising interest rates could cost borrowers around the world an additional $8.6 trillion in debt servicing costs in the coming years, and the economy will bear the consequences, S&P Global warned on Friday.
Central banks of major economies raised interest rates by a record total of 27 basis points last year to curb high inflation. Their moves have alarmed experts who fear that higher borrowing costs could trigger a global recession.
– Higher interest costs are already burdening governments and companies with lower credit ratings and households with lower incomes – warns S&P Global in its report.
The required yields on new projects in the business sector are rising along with debt costs, and this trend will ‘dampen the volume of business activity in the future,’ added S&P Global.
– The rise in interest rates and the slowing economy increase the debt burden – added S&P Global in a report published ahead of the World Economic Forum taking place next week in Davos, Switzerland.
– To mitigate the risk of a financial crisis, it may be necessary to find a balance between consumption and savings – they suggest.
The agency calculated that interest costs could rise by $8.6 trillion if interest rates on global debt of $300 trillion are raised by an average of three percentage points.
Approximately 65 percent of the additional debt servicing costs will be borne by fixed-rate bonds and loans as they are ‘refinanced over time,’ the report notes.
