News - Global Economy Adjusts to Stabilized Interest Rates: Challenges Ahead

The global financial landscape is witnessing a significant shift as economies adapt to normalized interest rates after over a decade of ultra-accommodative monetary policy. According to the Eurasian Development Bank's macroeconomic forecast, the return to 'normal' interest levels is resulting in a cascade of challenges across financial sectors. Among the most pressing issues is the unprecedented escalation of global debt burdens. In developed economies, public debt is projected to climb from 104% of GDP in 2019 to an estimated 115% by 2024. Emerging markets face a similar trajectory, with debt levels rising from 56% to 70% of GDP. This escalation places a significant strain on fiscal policy and financial flexibility. The investment landscape is also experiencing transformation. Corporate investment growth has tapered dramatically, averaging just 1% annually during 2023-2024, a stark decrease from historical averages of 2-4% per annum seen in the two decades leading up to 2019. This moderation in investment activity could potentially stifle innovation and productivity gains necessary for sustained economic growth. Furthermore, the financial vulnerability of corporations has increased significantly. The cost of capital has risen noticeably, with refinancing rates in mature economies now at 5-6%, compared to 1.5-3% in the preceding years. This rise in rates has led to a proliferation of 'zombie companies'—businesses that can only service debt with external support, thereby elevating the risk of financial instability. The impending peak periods for corporate and sovereign debt refinancing, set around 2027-2028 and 2025-2026 respectively, increase the urgency for comprehensive debt restructuring plans. Coupled with the necessity for fiscal consolidation in many countries, these dynamics could limit investment capacities and heighten the risk of a slowdown in global economic growth. In summary, while the transition to normalized interest rate environments is a necessary evolution, it brings with it a set of complex challenges that require careful management and strategic foresight to ensure financial stability and sustained economic prosperity.