According to the latest data from the Financial Institute, prolonged stress in developing markets, excluding China, has decreased to less than 180 basis points, which is 15 percentage points below the highest level. It is expected that the total global long debt will surpass 324 trillion dollars.
Due to the decline in the dollar's value, there remains an impact on developing economies, reducing the effects caused by the trade war initiated by U.S. President Donald Trump. The Institute noted that "in the case of continued political uncertainty, fiscal policy may require greater adaptation, especially in countries with tight trade ties with the United States".
There are also risks concerning the level of U.S. government debt and its influence on income from American obligations due to the significant demand in financing the largest economy in the world, including pressures to reduce taxes. The research also indicates that "large issuances of U.S. government obligations could lead to a pressure to increase income and tighten government spending due to rates... in such a scenario, the risks of inflation will also rise".
Trump's administration sees tariffs as a way to fill the budget deficit, conditioned on expected tax reductions, but the uncertainty around trade policy and its disruptions have slowed corporate expenditures and impacted U.S. growth. The research indicates that "ultimately, tariff increases (constituting 10 percent of global issuance) could reduce government revenues if countermeasures are elicited from other countries".
The Institute reported that only China accounted for more than two trillion dollars of this growth. It also noted that the Chinese government debt to GDP ratio is 93 percent and is expected to reach 100 percent by the end of the year. Brazil, India, and Poland have also recorded significant increases in their debt obligations in dollars.
