By Yoruk Bahceli and Dhara Ranasinghe
As an expert investment manager and financial markets journalist, I am here to analyze the current state of the world's biggest economies and how their massive debt piles are causing unease in financial markets, especially with upcoming elections adding to the fiscal uncertainty.
French bonds recently suffered a blow due to a surprise election outcome and ambitious spending plans, leading to concerns among investors. Similarly, the United States is facing scrutiny over its growing public debt dynamics ahead of the November presidential election.
While a full-blown debt crisis is not the immediate concern, investors are keeping a close eye on the potential risks associated with increased government spending.
Guy Miller, chief market strategist at Zurich Insurance Group, emphasized the need to focus not only on reducing debt but also on fostering a sustainable growth dynamic, particularly in Europe.
Let's take a closer look at five major developed economies that are currently on the radar:
1. FRANCE
France's budget deficit reached 5.5% of its output last year, triggering European Union disciplinary actions. The recent election results and subsequent spending plans have raised alarms, causing France's risk premium over Germany to surge. While the risk premium has slightly eased, concerns remain over the country's mounting debt levels.
2. UNITED STATES
The U.S. is projected to see its public debt rise from 97% to 122% of its output by 2034. The upcoming presidential election has led to expectations of larger budget deficits under a potential Donald Trump victory. This scenario could further strain longer-term borrowing costs, despite the safe-haven status of U.S. Treasuries.
3. ITALY
Italy, led by Prime Minister Giorgia Meloni, faces EU disciplinary measures due to its high budget deficit. While the country aims to reduce its deficit this year, its track record of meeting fiscal goals is concerning. Italy's debt levels are expected to rise, posing risks for investors.
4. UK
Britain's public debt hit nearly 100% of its GDP, with projections indicating a potential surge to over 300% by the 2070s. A new Labour government is tasked with balancing economic growth and spending constraints to stabilize the country's finances amid various fiscal risks.
5. JAPAN
Japan's public debt is more than double its economy, making it the highest among industrialized nations. While domestic ownership of Japanese debt provides some stability, concerns persist over rising interest payments and bond yields as monetary policy normalizes.
As an expert in investments and financial markets, it is crucial for individuals to stay informed about the fiscal health of major economies and how it can impact their investments and financial well-being. Understanding the risks associated with mounting debt levels and the potential consequences of lax fiscal policies can help individuals make informed decisions to safeguard their finances in the long run.