Key facts
- Developed market government debt is projected to reach a record $75.8 trillion by the end of 2026.
- Fitch Ratings estimates debt will increase by $4.2 trillion in the current year.
- Debt in developed markets is expected to reach 104% of GDP by 2026.
- The U.S. is forecast to have the largest government budget deficit among major developed economies at 7.8% of GDP.
- Factors contributing to debt include geopolitical shocks, defense spending, aging populations, and climate adaptation.
Government debt across developed economies is projected to reach a record $75.8 trillion by the end of 2026, driven by persistent budget deficits, geopolitical tensions, and increasing spending demands, according to Fitch Ratings. The agency forecasts that debt in these markets will rise by $4.2 trillion this year alone, pushing the total to 104% of gross domestic product, a significant increase from 68% two decades ago.
The United States is expected to lead the accumulation, with Fitch forecasting the largest government budget deficit among major developed economies at 7.8% of GDP, or approximately $2.5 trillion, this year. Other large economies like France, Britain, Germany, and Japan are also expected to post substantial deficits.
Fitch attributes the long-term increase in debt to a series of global shocks, including the financial crisis, the euro zone debt crisis, the COVID-19 pandemic, and ongoing geopolitical conflicts. Furthermore, structural spending pressures related to defense, aging populations, climate change adaptation, and higher interest costs are contributing to the rising debt burden.
The increased debt levels pose growing market risks. While 10-year government bond yields have seen a slight easing, they remain elevated compared to pre-conflict levels. Looking ahead, the U.S. debt-to-GDP ratio is projected to reach 131.5% by 2030, while Japan's is expected to remain the highest at nearly 192%.
Fitch noted that artificial intelligence could potentially boost economic growth and improve debt sustainability, particularly in the U.S. However, the agency also cautioned that AI could lead to higher unemployment, increased social outlays, and reduced tax revenues.