The blowout in public debt - how big an issue?
The blowout in sovereign debt, as a result of the global financial crisis, is proving to be a major issue. This is already evident in various countries in Europe, with particular concerns that Greece won't be able to finance its budget deficit and could default leading to contagion to other high debt countries.
By Shane Oliver, Head of Investment Strategy and Chief Economist for AMP Capital Investors.
But how big an issue is it really? This article looks at which countries are most at risk, why high public debt is a concern and the implications for investors.
Key points
- A global blowout in public debt has been a key outcome from the global financial crisis. Aging populations are also adding to deficit pressures.
- Debt crises in peripheral countries, such as Greece and Dubai, probably aren't enough to create a major global problem and default is very unlikely in key advanced countries, such as the US, UK and Japan. However, high public sector debt and measures to deal with it will act as a significant medium-term constraint on growth in advanced countries.
- Fortunately, emerging countries generally have low public debt levels, as do Australia and New Zealand.
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