Developed market debt set to reach record levels as deficits and spending pressures build

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Developed market debt record highs

Highlights

Fitch Ratings forecasts developed market government debt to reach a record $75.8 trillion by end-2026, rising $4.2 trillion this year to 104% of GDP.
The U.S. faces the largest 2024 budget deficit among major developed economies at 7.8% of GDP, or about $2.5 trillion, with France, Britain, Germany, and Japan following.
Fitch projects U.S. debt-to-GDP rising to 131.5% by 2030, Japan's remaining highest at nearly 192%, as higher defence spending and yields intensify fiscal pressures.

Fitch forecasts higher debt burden

As reported by Reuters, citing Fitch Ratings, government debt across developed economies is set to climb to a record $75.8 trillion by the end of 2026, with debt rising by $4.2 trillion this year alone. The ratings agency says that would bring the total debt load to 104% of gross domestic product, up from $26 trillion, or 68% of GDP, two decades ago.

Fitch expects the 10 largest developed economies to account for $69 trillion of the total, equal to 114.5% of GDP. It says the U.S. is likely to post the largest government budget deficit among major developed economies this year at 7.8% of GDP, or about $2.5 trillion, followed by France at 5%, Britain at 4.8%, Germany at 3.7% and Japan at 3.1%.

The agency says a succession of shocks, including the global financial crisis, the euro zone debt crisis, the COVID-19 pandemic, Russia's invasion of Ukraine and the ongoing U.S.-Iran conflict, has contributed to a long-term rise in debt levels. It also points to mounting structural spending pressures tied to defence, ageing populations, climate adaptation and higher interest costs.

Market and policy risks intensify

Fitch estimates European defence spending could rise by an average 0.6% of GDP between 2025 and 2029, adding to fiscal pressure in the region. Higher debt levels are also raising market risks, and although 10-year government bond yields in major markets have eased slightly since peaking during the U.S.-Iran conflict, they remain about 51 basis points above pre-war levels.

Over a longer horizon, Fitch projects the U.S. debt-to-GDP ratio will climb to 131.5% by 2030 from around 120% in 2026. Japan's ratio is expected to edge lower but still remain the highest among the group at nearly 192%.

Fitch says artificial intelligence could support stronger growth and improve debt sustainability, particularly in the U.S. But it also warns that the technology could increase unemployment, lift social spending and reduce tax revenues, complicating the fiscal outlook.

In our earlier coverage of UK gilt market jitters after Andy Burnham’s first fiscal signals as prime minister, we noted how investors quickly repriced borrowing costs on concerns about higher spending and looser policy within existing fiscal rules. We also highlighted that proposals such as changes to tax thresholds and broader cost-of-living measures would require credible funding, with elevated yields underscoring how limited the UK’s fiscal headroom is amid inflation and geopolitical risks.

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