Record debts, high interest rates, the costs of climate change, health and pension spending as populations age and fractious politics are stoking fears of a financial market crisis in big developed economies.
in government borrowing costs has put high debt in the spotlight, with investors demanding increased compensation to hold long-term bonds andThe United States, where brinkmanship around a debt limit brought it close to a default, Italy and Britain are of most concern, more than 20 prominent economists, former policymakers and big investors told Reuters.
Peter Praet, former chief economist at the European Central Bank, said that while debt still appears sustainable, the outlook is worrying given longer-term spending needs. High funding needs and central banks removing support are increasing pricing uncertainty for investors, Sophia Drossos, hedge fund Point72 Asset Management's chief economist, said.
"How does it end? I suspect not by default, but when markets start reflecting their worries in Treasury prices, by a political crisis and a potentially ugly adjustment," the former IMF chief economist said. Italy's 2.4 trillion-euro debt pile is the focus in Europe, where the IMF has said high debt leaves governments vulnerable to crisis.
Britain's Office for Budget Responsibility expects interest costs to rise to 7.8% of revenues by 2027-28, from 3.1% in 2020-21, exacerbated by inflation-linked debt.
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