Global debt levels are projected to reach an unprecedented high of $97.1 trillion in 2023, marking a 40% increase since 2019. This dramatic surge can be traced back to the financial aftermath of the COVID-19 pandemic, which compelled governments worldwide to adopt extraordinary financial measures to stabilize labor markets and prevent a vast wave of insolvencies.
Influence of Inflation and Interest Rates
The top contributors to the global government's gross debt are the United States, with a staggering $33.2 trillion, followed by Japan with a debt-to-GDP ratio of 255, and China holding $12.9 trillion. The United States alone accounts for over a third of the world's total debt, with the cost of servicing this debt projected to account for 20% of government spending by 2028, surpassing the total spent on defense.
The state of global debt and the return expectations are significantly influenced by factors such as inflation, interest rates, and economic resilience. In particular, the rise in interest rates underscores the increasing expense of managing and repaying debts, highlighting the fragility of economic systems, especially in the face of escalating borrowing costs.
Investment Returns Amid Rising Debt
Despite the alarming debt situation, the United States displays the highest long-term annual return expectations for investors at 15.6%. Conversely, the United Kingdom and Europe present more moderate return expectations overall. Vanguard's separate report forecasts U.S. equities to have 4.1-6.1% annualized returns, and global equities to register 6.4-8.4% returns over the next decade.
A comprehensive visualization by Visual Capitalist, using data from the International Monetary Fund (IMF), provides an illuminating breakdown of global debt by country as of 2023. This offers a clear perspective on how different nations are contributing to the overall debt landscape, and the potential implications for the global economy.