Global Economy Faces Fiscal Headaches as Interest Rates Rise and Sovereign Bond Markets Grow Restive

Strategic Insights -

Rising interest rates and elevated spending pressures are causing fiscal headaches worldwide, as governments' grand plans for borrowing bump up against hardening resistance in sovereign bond markets. The US remains firmly in the eye of the brewing storm, with President Donald Trump's tax bill expected to push annual budget deficits up to an estimated 6.9% of GDP and the debt burden to a record 125% of GDP by 2034. Meanwhile, the International Monetary Fund's latest Fiscal Monitor projects that global public debt will rise above its pandemic-era peak by the end of this decade, exceeding 100% of GDP.

Key Takeaways:

  • The US is expected to see its debt burden increase to a record 125% of GDP by 2034, with President Donald Trump's tax bill pushing annual budget deficits up to an estimated 6.9% of GDP.
  • A third of the world's economies are expected to see their debt burdens increase by the end of this year, including the US, China, and Brazil.
  • Emerging and low-income economies are particularly exposed, with external debt repayments mounting at the same time that aid inflows are declining.
  • The economist Joseph Stiglitz warned that the mounting developing-economy debt crisis will choke off much-needed investment in health, education, and infrastructure.
  • The OECD expects its largely advanced-economy membership to see debt burdens rise to an average of 114% of GDP next year.
  • Bond markets are growing restive, with sovereign bond yields increasing in recent months, making it more expensive for governments to borrow.
  • A growing chorus of senior financiers is calling for a rapid course correction to rein in the fiscal position.
  • The trend towards experimentation and adaptation is evident in global manufacturing, with companies rethinking their global footprints and focusing on diversification, automation, and regionalization.
  • The World Bank anticipates global GDP growth will weaken to 2.3% this year, marking the worst annual increase since 2008.
  • The OECD cut its own global growth projections to 2.9% for both 2025 and 2026, citing rising trade barriers, policy uncertainty, and persistent inflation.

Statistics:

  • Estimated 6.9% of GDP - the expected annual budget deficit in the US under President Donald Trump's tax bill.
  • 125% of GDP - the expected debt burden in the US by 2034.
  • 114% of GDP - the expected debt burden in the OECD's largely advanced-economy membership next year.
  • 3.2% - the recent 30-year Treasury yield in Japan.
  • 30% - the number of the world's economies expected to see their debt burdens increase by the end of this year.
  • 2.3% - the anticipated global GDP growth rate this year, according to the World Bank.
  • 2.9% - the OECD's global growth projections for both 2025 and 2026.

Sources:

  • World Economic Forum (12 Jun 2025)
  • International Monetary Fund (Fiscal Monitor)
  • OECD (latest survey of chief economists)
  • World Bank (GDP growth projections)
  • Moody's (credit rating agency)