The world economy is faced with a “mountain” of public debt, which according to IMF forecasts will reach 100 trillion dollars in 2024, while at the same time the world is “sitting” on a “bomb” of private and public debt , after total corporate and government household borrowing reached an all-time high of $312 trillion at the end of the first half of 2024, representing 332% of global GDP, according to the adjusted calculations of the Institute of International Finance (IIF).
Three main groups
The IMF estimated that public debt is expected to reach 93% of global GDP in 2024, surpassing the 100% mark by the end of the decade. In an adverse scenario it could rise 20% above current levels to 115% of global GDP by 2026.
Three main groups of states are observed, he said Vitor Gaspardirector of the IMF’s fiscal policy monitoring department: In the first, which concerns a third of the countries that represent 70% of global debt, an acceleration of the growth rate (of debt) is expected compared to the pre-pandemic trend. This group includes the United States, China, some of the leading advanced economies (UK, Italy, France) and major emerging markets (Brazil and South Africa).
Cost reduction
In the second group, which also concerns another third of the countries, debt growth is expected to move more slowly or even decrease compared to pre-pandemic trends, while in the third category, in the remaining countries, debt is expected to decrease.
According to IMF calculations, governments would need to cut spending by an average of 3% to 4.5% of GDP in the medium term to have a good chance of stabilizing debt ratios. Deficits widened during the pandemic. Then – Europe in particular – came under new pressure as Russia’s invasion of Ukraine sent energy prices soaring.
Population aging, investments in the green transition and the end of the post-Cold War “peace dividend” brought about by the new geopolitical landscape, reflected in the increase in defense spending, limit the fiscal margins of states.
Positive outlook for Greek debt
Scope Ratings
Debt reduction reinforces positive outlook for Greek debt rating, analyst said Dennis Shenof Scope Ratings, estimating that by 2029 the debt-to-GDP ratio will shrink to 132.8% of GDP, i.e. at lower levels than at the beginning of the crisis in 2009 and below Italy’s public debt (with a higher rating of BBB+) until 2027.
As he estimates, the country will even slightly exceed the target for a primary surplus of 2.1% of GDP this year, expecting a primary surplus of 2.5% of GDP on average in the period 2025-2027, i.e. in the rest, as he states, of term of the prime minister K. Mitsotakis. The estimates have also taken into account the early repayment this year of 7.9 billion euros from the loans of the second memorandum, while assuming an increase in production by 2.4% this year, 1.9% in 2025 and 1.4% at average levels for the period 2026-2029.
Difficult future
The director general of the IMF Kristalina Georgievain the context of the autumn meeting of the IMF and the World Bank in Washington, he emphasized that this “mountain” of debt burdens the entire world. Our forecasts show a very ugly combination of low growth and high debt, suggesting a difficult future,” he pointed out, noting that governments should reduce debt and “build buffers for the next shock – which will surely come, and maybe sooner than we expect.”
At the top is the USA, with a colossal debt of 35 trillion. dollars, representing over a third of the total global debt.
Its rapid expansion reasonably causes strong concern about its unsustainability (as highlighted, for example, by the cross-party organization CRFB / Committee for a Responsible Federal Budget), increasing the risk of temporary suspension of payments (shutdown), while economic plans both of him Donald Trump as well as her Kamala Harris they lead anyway to a new swelling of it.
As a percentage of GDP, Japan’s debt stands out from the major economies with 251.2% this year, a consequence of the rapid aging of the Japanese population which creates the need for increased financing to cover pension obligations, but also of the country’s fixed economic policy to borrow in yen at very low interest rates, and at the same time invest in bonds with higher yields and relative risk.
For Greece, the IMF predicts that with primary surpluses at 2.1% of GDP until 2029, the Greek debt, after having peaked at 213.2% of GDP in 2020, will fall to 159% this year, to 139.4 % in 2029, thus surpassing Italy, whose debt will then move to 142.3% of its GDP.
It should be noted that Eurostat, based on the new statistical depiction of the Greek debt, proceeded with its upward revision, retroactively recording from 2012 the deferred interest of the second memorandum, with a total value of 12.4 billion euros, while thereafter they will be recorded annually and the remaining interest until 2032.
Thus, as the total of 23 billion euros of deferred interest will be recorded gradually and not as foreseen in 2032, this year ceases to be a milestone for the management of the debt occupying Authorities and investors.
Additionally, 12.4 billion euros (out of a total of 23 billion euros) may have already been written into the debt, but it should be noted that the impact is softened, since the country’s GDP has been revised upwards for 2023 by 5 billion euros at 2.3%, while on December 15 this year we will also have the early repayment of the three installments, totaling 7.935 billion euros, of the bilateral loans (GLF) of the first memorandum for the period 2026-2028, using for the transaction this and the amount of 5 billion euros from the so-called “hard core” (of 15.69 billion euros) of the country’s total cash “cushion”, while similar movements are expected in the coming years. Based on the debt analysis (DSA), in all future scenarios the Greek debt is considered to be serviceable.
There have been four major waves of debt accumulation worldwide since the 1950s, analysts say. The first wave of debt came from Latin America in the 1980s, which led 16 countries in the region to restructure their loans. The second wave affected Southeast Asia in the early 21st century, while the US and Europe bore the brunt of the third wave of global debt during the 2007–2008 global financial crisis, which led to the euro debt crisis and the Greek default. We are now in the fourth wave, which has intensified with the COVID-19 pandemic.
Deficits
Deficits widened during the pandemic.
Then, Europe in particular came under new pressure as Russia’s invasion of Ukraine sent energy prices soaring. The aging of the population, investments in the green transition and the end of the “peace dividend” reflected in the increase in defense spending, limit the fiscal margins of states.
159% of GDP
For Greece, the IMF predicts that with primary surpluses at 2.1% of GDP until 2029, the Greek debt, after having peaked at 213.2% of GDP in 2020, will fall to 159% this year and to 139.4 % in 2029, thus surpassing Italy, whose debt will then move to 142.3% of its GDP.
The question
It may be that the total (public and private) debt as a percentage of GDP after the pandemic and the “turning around” of the economies has fallen today to 332% of global GDP from about 360% at the peak of COVID-19, but in absolute terms it is 20 % higher (from $260 trillion in 2020 to $312 trillion today).
The fourth wave of debt accumulation represents the largest, fastest, and most widespread increase in debt seen since World War II. The question now is whether economies are sufficiently shielded to stave off a widespread debt crisis somewhere in the world.
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