Global public debt to pass $100tn this year, warns IMF
Global public debt is on track to exceed $100tn by the end of this year, the International Monetary Fund has warned.
In its latest fiscal monitor report, the Fund says:
Global public debt is very high. It is expected to exceed $100 trillion, or about 93% of global gross domestic product by the end of this year and will approach 100% of GDP by 2030.
This is 10 percentage points of GDP above 2019, that is, before the pandemic.
The IMF is worried that this high debt reduces the fiscal space available to governments to respond to economic downturns, making it harder to make growth-enhancing investments.
It also raises the risk of sovereign distress – ie, countries struggling to repay their debts.
The Fund is also concerned that the fiscal outlook of many countries might be worse than expected – it cites three reasons: large spending pressures, optimism bias of debt projections, and sizable unidentified debt.
It adds:
And countries will need to increasingly spend more to cope with aging and healthcare; with the green transition and climate adaptation; and with defense and energy security, due to growing geopolitical tensions.
This means that debt-to-GDP ratios in five-years time could be as much as 10 percentage points of GDP higher than projected on average, it warns – if, for example, growth was weaker than expected or financial conditions are tighter.
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Time to wrap up… here are today’s main stories:
UK employer national insurance hike threatens jobs and pay rises, firms warn
Julia Kollewe
British employers have warned that a rise in employer national insurance contributions in the budget could hit hiring and limit pay rises, hurting businesses including pubs, hotels and restaurants.
Keir Starmer and the chancellor, Rachel Reeves, have refused to rule out a rise in employer contributions in the budget on 30 October, as part of plans to plug what the government says is a £22bn hole in the public finances left by the previous Conservative government.
The head of UK Hospitality, which represents bars, pubs, restaurants and hotels, said such a move would be a tax on jobs.
“An increase would particularly hammer sectors like hospitality, where staffing costs are the biggest business expense,” said Kate Nicholls, the group’s chief executive.
“Hospitality businesses are much less able to stomach yet another cost increase, when they’re already managing increases in other areas like wages, food, drink and energy.”
IMF: Uncertainty is high, and it’s bad for financial stability and growth
Phillip Inman
The global economy is a volatile place and politicians trying to cope with the ups and downs should be cut some slack, the International Monetary Fund appears to be saying in its latest message ahead of the Washington-based organisation’s annual meetings next week.
Uncertainty about where the global economy is going has been higher since the Covid-19 pandemic and the inflation shocks that followed Russia’s invasion of Ukraine, the IMF says in an advanced chapter of its Global Financial Stability Review, just released.
Rising tensions from the ongoing situation in Ukraine and the middle east conflict are only adding to the difficulties for all governments of making economic and social policies that give a degree of certainty to households and businesses.
Uncertainty, says the IMF, is a growth killer. The lender of last resort says it has evidence from the 2008 banking crash, when the lack of certainty reduced GDP growth a year ahead by 1.2 percentage points on average in advanced and emerging market economies.
The uncertainy also persuades central banks to keep interest rates higher than they would otherwise do, crippling with higher interest bills those businesses and governments that have allowed their debts to pile up in the good times, when interest rates were low.
However, politicians are not entirely off the hook. The IMF says governments should avoid the temptation to loosen regulations that allow for reckless borowing to boost growth. It said politicians should maintain and enhance regulations limiting the risks that banks and other financial services can take.
Governments should also “build adequate international reserve buffers and allow exchange rate flexibility to help cushion the adverse spillover effects of an increase in foreign macroeconomic uncertainty”, the Fund says.
This is a message to Beijing and Washington to resist promoting a strong currency as a policy goal when that can distort global financial markets.
OUCH! ASML’s reduced sales forecast and 3Q booking miss sink semiconductor stocks. Semiconductor index Sox down 4% w/ASML down 13.4%. pic.twitter.com/EKgUzF05dL
— Holger Zschaepitz (@Schuldensuehner) October 15, 2024
Rachel Reeves has been urged to abandon Labour’s manifesto promise and raise national insurance for workers in the budget – by her former boss at the Bank of England, Mervyn King.
In an article for the Independent, King says that it was “reckless” for the Tories to cut national insurance before the general election, that both main parties were “irresponsible” when they said they would not reverse those cuts and that it would be best for the government to put it back up.
Shares in computer chip equipment maker ASML have fallen sharply this afternoon after the company’s third quarter earnings were published early in an apparent error and showed the company was downbeat on its 2025 sales.
They showed that chief executive Christophe Fouquet said in a statement:
“We expect our 2025 total net sales to grow to a range between 30-35 billion euros, which is the lower half of the range that we provided at our 2022 Investor Day,”
Shares were down 15% at €673.60.
BMW chief says EU combustion engine ban will shrink car industry
Lisa O’Carroll
The EU’s plans to ban the manufacture of traditional combustion engines from 2035 will shrink the industry, BMW’s chief executive has warned as the German car industry battles with increased competition from China in the electric vehicle sector.
In a comment that will alarm Brussels, Oliver Zipse told the Paris motor show the 2035 cutoff point for CO2-emitting cars was “no longer realistic”.
The ban “could also threaten the European automotive industry in its heart,” Zipse said. The measures will “with today’s assumptions, lead to a massive shrinking of the industry as a whole”.
Investment giant BlackRock gave the UK a thumbs-up today, advising clients to buy British government debt.
BlackRock’s research arm upgraded its call on UK government bonds to overweight from neutral.
They predicted the Bank of England will slash interest rates faster than expected by markets, meaning the current rates of return on bonds will not be available for long.
“We are overweight,” BlackRock strategists including Wei Li wrote in a weekly note, adding:
“Gilt yields offer attractive income, and we think the Bank of England will cut rates more than the market is pricing given a soft economy.”
Bloomberg has more details.
BlackRock’s research arm upgraded its call on UK government bonds to overweight from neutral, saying the BOE will slash interest rates faster than expected by markets https://t.co/BtGQS5chQy
— Bloomberg (@business) October 15, 2024
NASDAQ UP 6.95 POINTS, OR 0.04 PERCENT, AT 18,509.63 AFTER MARKET OPEN
DOW JONES DOWN 92.18 POINTS, OR 0.21 PERCENT, AT 42,973.04 AFTER MARKET OPEN
S&P 500 UP 3.03 POINTS, OR 0.05 PERCENT, AT 5,862.88 AFTER MARKET OPEN
— First Squawk (@FirstSquawk) October 15, 2024
Back in the US, shares in pharmacy chain Walgreens Boots Alliance have jumped over 4% in premarket trading after it announced a store closure programme.
Walgreens Boots plans to shut 1,200 stores over the next three years.