According to a recent analysis, global sovereign debt should rise by 9.5 percent to a record $71.6 trillion in 2022; moreover, new borrowing should stay high.
According to Janus Henderson’s second annual Sovereign Debt Index, the United States, Japan, and China are likely to lead a 9.5 percent growth in global government debt. The great majority of nations should boost borrowing. Global government debt increased 7.8% to $65.4 trillion in 2021, as every country evaluated increased borrowing. Still, debt payment expenses fell to a historic low of $1.01 trillion; representing an effective interest rate of just 1.6 percent.
On the other hand, debt servicing expenses should grow dramatically in 2022; they should rise by about 14.5 percent to $1.16 trillion on a constant-currency basis. The United Kingdom will be hit most by increasing interest rates, rising inflation on large amounts of U.K. index-linked debt, and the expenses of unwinding the Bank of England’s quantitative easing program.
Germany has already pledged to increase defense expenditure to more than 2% of GDP; it marked a significant policy shift in the aftermath of Russia’s invasion of Ukraine; moreover, it contributed 100 billion euros ($110 billion) to a fund for its armed forces.
During the first few years of the epidemic, central banks lowered interest rates to unprecedented lows to aid weak economies. Monetary policy convergence became a topic.
However, as central banks in the United States, the United Kingdom, Europe, Canada, and Australia look to tighten policy strings to contain inflation, Janus Henderson noted that divergence is now emerging as a key theme as China continues to try to stimulate the economy with a more accommodative policy stance. Payne noted that this discrepancy presents chances for investors in short-term bonds that are less vulnerable to market circumstances, citing two areas in particular.