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Apollo Global Management’s James Zelter “sceptical” of economic soft landing: Credit market titans express concerns over rising defaults and looming headwinds

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Global Debt Concerns Mount as Financial Titans Warn of Looming Headwinds

Top figures in the world of finance have expressed concerns over the potential impact of rising interest rates and increasing debt levels on the global economy. Speaking at the Bloomberg Global Credit Forum in London, executives from firms such as Apollo Global Management, Ares Management, and Sixth Street Partners warned of possible defaults and a challenging environment for borrowing.

While credit markets currently appear stable, industry experts fear that the consequences of higher interest rates may gradually affect both consumers and companies. This unease reflects a broader anxiety among money managers, following a period of rapid interest rate hikes.

Despite the steep rise in interest rates, the Institute of International Finance (IIF) reported that global debt reached a record high of $307 trillion in the first half of 2023. This figure suggests that the full impact of increased borrowing costs has yet to be felt.

James Zelter, from Apollo Global Management, expressed skepticism about the possibility of a smooth economic transition. In an interview with Bloomberg Surveillance, Zelter stated, “When people say we’re going to have a soft landing, I’m skeptical. I see a world where financial conditions have gotten tighter.”

The concerns raised by these financial leaders are amplified by signs of economic weakness, such as rising fuel prices impacting household spending in the United States and China’s reliance on policy support to bolster its economy. In the United Kingdom, a combination of a cost-of-living crisis and higher interest rates has led to a decline in business activity to its lowest level since January 2021.

Ana Andrade of Bloomberg Economics warned that the UK’s economic downturn may have already begun, and this assessment likely influenced the Bank of England’s decision to hold rates at its most recent meeting. Governments that borrowed heavily during the pandemic, including the UK and the United States, now face the challenge of managing their debt burdens amidst higher interest rates.

According to the Institute of International Finance, global debt as a percentage of gross domestic product is projected to reach 337% by the end of 2023. This level surpasses pre-pandemic figures and is primarily driven by budget deficits. Ares Management’s Michael Arougheti emphasized that it is fiscal policy, rather than monetary policy, that poses the greatest risk. He stated, “The big risk now, in the global context, is obviously what happens with deficit spending. There’s a bigger risk we make a mistake there.”

As financial titans voice their concerns, policymakers and central banks around the world will need to navigate these challenges diligently to ensure the stability of the global economy. With rising debt levels and the potential impact of higher interest rates, it is clear that caution and careful management will be essential moving forward.

More detail via The Star here… ( Image via The Star )

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