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Are Advanced Economies at Risk of Falling Into Debt Traps?
Report

Are Advanced Economies at Risk of Falling Into Debt Traps?

Bruegel, 2016

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Editorial Rating

8

Qualities

  • Analytical
  • Innovative

Recommendation

Many advanced economies are confronting growing levels of sovereign debt: Gross debt-to-GDP ratios are surpassing 80% and in some cases exceeding 100%: Japan’s figure stands at nearly 250%. Professor Marek Dabrowski dissects the developed world’s current public borrowing and its implications for future growth. He posits that, without sizable fiscal reforms, advanced nations will face serious constraints on discretionary spending, as well as the specter of financial contagion if another economic crisis should unfold. getAbstract recommends his authoritative, sobering report to executives, officials and investors interested in understanding debt’s impacts on developed economies.

Take-Aways

  • With the developed economies growing at a tepid pace, their sovereign debts have reached levels not seen since the late 1940s.
  • Notable countries with gross debt-to-GDP ratios above 100% include Japan (248.1%), Greece (178.4%), Italy (132.6%) and the United States (105.8%).
  • Research shows that in a higher interest rate environment, only Ireland would escape a “serious fiscal adjustment.” The most painful cuts would have to occur in Japan, where politically risky expense reductions of almost 9% of GDP might stabilize debt growth.

About the Author

Marek Dabrowski is a nonresident scholar at Bruegel, a European think tank.


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