Multiple shocks exacerbate fiscal expenditure pressure! Fitch: Government debt in developed economies will hit a new high by the end of 2026.

Credit rating agency Fitch Ratings said on Tuesday that as countries continue to face fiscal deficits, geopolitical tensions, and escalating fiscal expenditure demands, government debt in developed economies is expected to reach a record $75.8 trillion by the end of 2026. Fitch stated that just this year alone, government debt in developed economies is expected to increase by $4.2 trillion, bringing the total debt to 104% of the Gross Domestic Product (GDP). In comparison, this number was only $26 trillion 20 years ago, accounting for 68% of GDP. Fitch forecasts that the total government debt of the top ten major developed economies in the world will reach $69 trillion, equivalent to 114.5% of GDP, highlighting the leading role played by the United States and other major borrowing countries in driving global debt accumulation. Fitch predicts that the United States will have the largest government fiscal deficit among major developed economies this year, accounting for 7.8% of GDP, approximately $2.5 trillion. France's fiscal deficit is expected to be 5% of GDP, the United Kingdom at 4.8%, Germany at 3.7%, and Japan at 3.1%. Fitch warned that a series of shocks, including the global financial crisis, the Eurozone debt crisis, the COVID-19 pandemic, the Russia-Ukraine conflict, and the ongoing US-Iran conflict, are all driving the long-term continuous increase in global government debt. At the same time, governments are also facing structural fiscal pressures related to defense spending, aging populations, addressing climate change, and increasing interest expenses. Fitch predicts that European defense spending will increase by an average of 0.6% of GDP from 2025 to 2029. The rising level of debt is also increasing financial market risks. Although yields on major market 10-year government bonds have fallen since reaching their peak during the US-Iran conflict, they are still about 51 basis points higher than before the conflict erupted. Looking ahead, Fitch predicts that by 2030, the US government debt-to-GDP ratio will increase from approximately 120% in 2026 to 131.5%; Japan's ratio is expected to slightly decrease but will still be the highest among major developed economies, close to 192%. Fitch stated that Artificial Intelligence (AI) is expected to drive economic growth and improve the sustainability of government debt, especially in the United States. However, AI may also lead to an increase in unemployment, higher social welfare expenditures, and weaken tax revenues.