The global adjustment to higher borrowing costs is just beginning, and we think it will likely be more painful for some than others. Across developed economies, households and businesses are struggling under a mountain of debt that will, in many cases, only get heavier and more destabilizing in the year ahead.

Private non-financial sector debt service ratios, %

Exposures vary across countries, and structural differences complicate cross-national comparisons. But we think the United Kingdom bore the brunt of tightening early and could move through the low point of the economic cycle relatively quickly, given a lower starting point in private sector debt service ratios. The euro area’s pain could be more prolonged, with France picking up the baton from export-focused Germany in experiencing a downturn. Canada and Australia, with much higher levels of indebtedness, financial systems dependent on short-term mortgage vehicles, and economies heavily reliant upon real estate-related activity, could suffer the worst – with an Australian caveat potentially coming from the country’s relationship with a more stimulative China.