The coronavirus will push debt levels in the world's richest nations up by almost 20 percentage points on average this year, credit rating agency Moody's said on Monday, almost double the damage seen during the financial crash. A new report by Moody's looked at 14 countries from the United States and Japan to Italy and Britain and assessed how coronavirus-induced economic slowdowns would scar their finances.
"We estimate that on average in this group, government debt/GDP ratios will rise by around 19 percentage points, nearly twice as much as in 2009 during the Great Financial Crisis". "Compared with the GFC, the rise in debt burdens will be more immediate and pervasive, reflecting the acuteness and breadth of the shock posed by the coronavirus".
Italy, Japan and Britain are expected to suffer the biggest debt increases at around 25 percentage points of their respective GDPs, while the United States, France, Spain, Canada and New Zealand will all see theirs jump roughly 20 ppts. Data from the UK last week showed public borrowing hitting a record high in May and a measure of public sector debt passing 100% of economic output.
A failure to bring debt levels back down would leave countries with weaker credit profiles more vulnerable to future economic or financial shocks, and sovereign credit rating downgrades, Moody's added. "Rating implications will depend on governments' ability to reverse debt trajectories ahead of potential future shocks," the report said.
"Italy and Japan will be particularly dependent on growth trends since scope to narrow and sustain materially stronger financial balances than before the shock is limited".