LONDON- Major developed economies face a surge in debt as the coronavirus crisis sparks massive fiscal stimulus, but they have time to get their houses in order, Barclays said on Wednesday.
In a new report on debt in developed markets, the British bank added that policymakers won’t be able to ignore worsening fiscal profiles for long.
The ratio of debt to gross domestic product for G20 countries is set to rise above World War Two levels in the coming year. Barclays expects the U.S. ratio to rise almost 30 percentage points over the next two years; the euro area’s is likely to grow to around 100 percent in 2020 from about 85 percent in 2019.
Barclays said the United States is seeing the greatest fiscal deterioration but is “least likely to face a reckoning” on its debt levels.
That is because the world’s biggest economy enjoys the benefits of having the reserve currency and a large and liquid bond market that’s less prone to volatility, Barclays said.
But the euro zone remains vulnerable, as a monetary union without a fiscal union.
Italy’s debt burden is rising sharply, but its debt trajectory is likely to stabilize at high levels rather than end up on “unsustainable exponential path”, Barclays said. It expects the country’s debt/GDP ratio to reach 165 percent.
“The key contributor is the structurally low core interest rates and the ECB’s commitment to putting a cap on Italian spreads,” Barclays said, referring to the European Central Bank’s asset-purchase scheme. – Reuters
