Three heavyweight international bodies have issued stark warnings about the risks of rising debt levels and soaring borrowing costs across large economies.
The Paris-based Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF) and the International Institute of Finance (IIF), the voice of global banking, on Wednesday highlighted the dangers of soaring interest rates on $365tn (£275tn) in global borrowing.
In its quarterly debt monitor, the IIF predicted a “structurally debt-intensive future” as governments and companies scramble to invest in new technologies and bear the costs of ageing societies.
“The buildup in global debt is set to accelerate as governments and corporates compete to boost growth and secure their positions in an economy reshaped by structural changes,” it said.
It compared the current status of some of the world’s largest economies, including the UK, with crisis-hit emerging countries.
“The US, France, the UK, and Japan face persistently large deficits and rising interest expenses – challenges long associated with debt-distressed emerging market sovereigns.”
With many politicians facing elections in the coming months, and belt-tightening unlikely to be popular with voters, it said: “The risk is that already-unsustainable debt trajectories continue to deteriorate.”
While in New York this week for the UN general assembly, the UK prime minister, Andy Burnham, denied reports that he had been shocked by the parlous state of the public finances since he came to power in July.
“It’s not the case that we were surprised when we came in, not least because I was in access talks and understood very clearly the position,” he told reporters. “The truth of the matter is that because of the situation in the Middle East, the position changed, and has changed over the time I’ve been in. That’s just the reality of the situation that we’re in.”
The IIF’s warning came as the OECD highlighted the rising cost of servicing government debts as one key risk to the global economy in the coming months.
In its interim economic outlook the OECD said global growth had been more resilient than expected given the strains of the US-Israel war on Iran.
However, presenting the report, its secretary general, Mathias Cormann, warned: “Fiscal and financial risks have grown. Thirty-year government bond yields are at their highest in 15 years or more in six of the G7 economies. That means higher debt-servicing costs for governments whose budgets are already under strain, and it means higher borrowing costs for businesses and households.”
His words echoed a warning by the managing director of the International Monetary Fund, Kristalina Georgieva, who told the BBC the world’s advanced economies must take action to reduce their borrowing and bring down debt levels.
after newsletter promotion
Georgieva said a succession of global economic shocks had been “pushing debt levels up like a staircase not to heaven”, with governments taking “no action to contain that service cost. [It’s] time to take that action,” Georgieva said, adding that courage was needed by politicians to take the necessary steps.
In its quarterly forecast update, the OECD highlighted the better-than-expected growth performance of the global economy this year but warned that the recent resurgence in oil and gas prices posed risks for the coming months.
“Global economic prospects remain heavily dependent on whether a durable resolution to the Middle East conflict is achieved,” it said.
It projected global economic growth of 2.9% this year – a modest 0.1 percentage point upgrade from the 2.8% it forecast in June. At the same time, it trimmed the outlook for next year slightly, from 3.1% to 3%.
It also identified the record-breaking El Niño weather system – expected to be the strongest in 1,000 years – as a “significant downside risk” to the global economy, warning that it could hit agricultural production and push up food prices.Looking at the UK, the OECD significantly cut its inflation forecast for this year, from 3.7% to 3.1%, after prices rose less dramatically than expected.
Economic growth for the UK is forecast at 1.1% for 2026, up from the 0.9% it had forecast in June and 0.7% in March, “with consumption expected to be supported by newly announced government support measures”.
