Huge global debt burden will ‘haunt us’ all

THE trillions of pounds of extra debt which is being taken on by governments around the world will ‘come back to haunt us’, a top economist has warned.

As further signs emerged of the devastating impact Covid-19 is having on the global economy, Angel Gurria, the boss of the Organisation for Economic Co-operation and Development (OECD), said any recovery would probably be slow and gradual.

Countries have already raised their borrowing to battle the effects of the coronavirus pandemic, with the UK’s share of borrowing set to rise above £300bn this year.

Gurria, who leads the OECD club of mostly wealthy countries, added: ‘We are going to be heavy on the wing because we are trying to fly and we were already carrying a lot of debt and now we are adding more.’

The warning came as official figures showed the UK economy contracted by a record 5.8pc in March alone.

April’s figures are likely to be even worse, as it was spent in lockdown. The Bank of England has warned of the deepest downturn since 1709.

And although Britain has the highest death toll from coronavirus in Europe, it is not alone in being hamstrung.

The eurozone as a whole shrank by 3.8pc in the first quarter. Italy’s economy was squeezed by 4.7pc in the first quarter, although this was partly because it imposed a strict lockdown earlier than the UK.

A massive 5.8pc was shaved off France’s economy, according to preliminary estimates, while Spain’s output has dropped by 5.2pc.

Over in the US, the chairman of the Federal Reserve Jay Powell said yesterday that ‘additional policy measures’ might be required to drag the country out of its slump.

He again ruled out a move favoured by President Trump to take interest rates negative, which would effectively mean borrowers being paid to take out a loan.

As countries have tightened borders and manufacturing activity has slumped, global trade has been hammered.

A report from the United Nations Conference on Trade and Development showed the value of global trade fell 3pc in the first three months of 2020.

And the downturn is expected to accelerate into the second quarter with a further 27pc drop in trade.

Shipping titan Maersk’s chief executive Soren Skou told the Financial Times he was worried about rising protectionism, and said he predicted a 20-25pc drop in demand in the second quarter.

He said this would be ‘the biggest drop in demand on record, worse than during the global financial crisis’.