International Organizations Highlight Debt Risks for Major Economies

In its quarterly debt monitor, the IIF pointed to a looming “structurally debt-intensive future,” as both governments and corporations seek to invest in new technologies while managing an aging population's costs. The report mentioned that the global debt accumulation is likely to hasten as nations and businesses strive to stimulate growth in a rapidly evolving economy.

The IIF drew parallels between advanced economies, such as the US, UK, France, and Japan, and struggling emerging markets, noting that these countries are now experiencing persistently high deficits and escalating interest expenses. The report cautioned that these unsustainable debt trajectories could worsen, especially with upcoming elections making fiscal austerity less appealing to politicians.

During the UN General Assembly in New York, UK Prime Minister Andy Burnham addressed reports suggesting he was taken aback by the public finances' precarious condition since assuming office in July. Burnham stated that he had anticipated the financial status due to prior discussions and emphasized that the situation had shifted due to developments in the Middle East.

The OECD report emphasized the increasing costs associated with servicing government debts, which poses a significant risk to the global economy. OECD Secretary General Mathias Cormann noted that the growth of the global economy has been more resilient than initially expected amid the turmoil from the US-Israel conflict. However, he warned that fiscal and financial risks have escalated, with thirty-year government bond yields at their highest in over 15 years across six G7 economies, resulting in higher debt service costs for strained government budgets and increased borrowing costs for households and businesses.

IMF Managing Director Kristalina Georgieva echoed these concerns, stating that advanced economies need to take measures to reduce borrowing and manage debt. She remarked that a series of global shocks has driven debt levels upward and stressed the importance of political courage to effect necessary changes.

The OECD's economic outlook identified the recent spike in oil and gas prices as a potential risk for the coming months while reporting a modest improvement in expected global growth. Its projection for global economic growth in 2023 has been slightly upgraded to 2.9% from the previously anticipated 2.8%. However, growth for the following year was adjusted downwards from 3.1% to 3%. Additionally, the OECD flagged the forthcoming El Niño weather pattern as a major downside risk, likely impacting agricultural output and rising food prices.

For the UK, the OECD revised its inflation forecast for this year down from 3.7% to 3.1% due to less severe price increases than anticipated. The economic growth forecast for the UK in 2026 now stands at 1.1%, a slight increase from earlier predictions.