Government debt across developed economies is set to climb to a record US$75.8-trillion by the end of 2026 as countries struggle with persistent budget deficits, geopolitical tensions and rising spending demands, Fitch Ratings said on Tuesday.
The ratings agency said debt in developed markets would increase by US$4.2-trillion this year alone, taking the total to the equivalent of 104 per cent of gross domestic product, up sharply from US$26-trillion, or 68 per cent of GDP, two decades ago.
Fitch expects the 10 largest developed economies to account for US$69-trillion of that total, equivalent to 114.5 per cent of GDP, highlighting the outsized role of the United States and several other large borrowers in driving global debt accumulation.
The agency forecast the U.S. would record the largest government budget deficit among major developed economies this year at 7.8 per cent of GDP, or roughly US$2.5-trillion. France is expected to post a deficit of 5 per cent of GDP, followed by Britain at 4.8 per cent, Germany at 3.7 per cent and Japan at 3.1 per cent.
Analysis: Is government debt 132% of GDP, or 21%? Depends on which debt you include
It warned a series of shocks, including the global financial crisis, the euro zone debt crisis, the COVID-19 pandemic, Russia’s invasion of Ukraine and the ongoing U.S.-Iran conflict, had all contributed to a long-term ratcheting up of debt.
Governments are also facing growing structural spending pressures linked to defense, aging populations, climate change adaptation and higher interest costs. Fitch estimated European defense spending could rise by an average 0.6 per cent of GDP between 2025 and 2029.
Higher debt levels are also increasing market risks. Although 10-year government bond yields in major markets have eased slightly since peaking during the U.S.-Iran conflict, they remain about 51 basis points above pre-war levels.
Looking further ahead, the U.S. debt-to-GDP ratio is projected to climb to 131.5 per cent by 2030 from around 120 per cent in 2026, while Japan’s ratio is forecast to dip slightly, although it will remain the highest in the group at nearly 192 per cent.
Artificial intelligence could boost growth and improve debt sustainability, especially in the U.S., Fitch said. However, it could also lead to higher unemployment and social outlays and also lower tax revenues.