Deleveraging - Deleveraging of Macro-Economy

Deleveraging of Macro-Economy

Deleveraging of an economy refers to the simultaneous reduction of leverage level in multiple private and public sectors, lowering the total debt to nominal GDP ratio of the economy. Almost every major financial crisis in modern history has been followed by a significant period of deleveraging, which lasts six to seven years on average. Moreover, the process of deleveraging usually begins a few years after the start of the financial crisis.

As in January 2012, four years after the start of the 2008-09 global financial crisis, many mature economies and emerging economies in the world have just begun to go through a major period of deleveraging. This is mainly because the continuing rising of government debt, due to the Great Recession, has been offsetting the deleveraging in the private sectors in many countries.