Developed Market Debt to Reach Record $75.8 Trillion by 2026, Fitch Warns

Government debt across developed economies is projected to reach a record $75.8 trillion by the end of 2026, driven by persistent budget deficits, geopolitical tensions, and mounting spending demands, Fitch Ratings said in a report on Tuesday.

The ratings agency forecasts that debt will increase by $4.2 trillion this year alone, pushing the total to 104% of gross domestic product. This represents a sharp rise from two decades ago, when the total stood at $26 trillion, or 68% of GDP.

Deficits and Spending Pressures

Fitch attributed the long-term debt accumulation to a series of economic and geopolitical shocks, including the global financial crisis, the COVID-19 pandemic, and Russia’s invasion of Ukraine. The agency also highlighted growing structural spending pressures from aging populations, defense, climate change adaptation, and higher interest costs.

The United States is forecast to record the largest government budget deficit among major developed economies this year at 7.8% of GDP, or roughly $2.5 trillion. Other notable deficit projections from Fitch include:

• France: 5.0% of GDP
• Britain: 4.8% of GDP
• Germany: 3.7% of GDP
• Japan: 3.1% of GDP

Country-Specific Outlook

Ad

The report notes that the 10 largest developed economies are expected to account for $69 trillion of the total debt, equivalent to 114.5% of their collective GDP. This underscores the significant role of the U.S. and other large sovereign borrowers in driving the global trend.

Looking further ahead, Fitch projects the U.S. debt-to-GDP ratio will climb to 131.5% by 2030 from around 120% in 2026. Japan’s ratio, while forecast to dip slightly, is expected to remain the highest in the group at nearly 192% by 2030.

Market Risks and Future Factors

Higher debt levels are increasing market risks, the agency warned. Although 10-year government bond yields in major markets have eased from recent peaks, Fitch noted they remain about 51 basis points above levels seen before the U.S.-Iran conflict referenced in its analysis.

Fitch also suggested that artificial intelligence could boost growth and improve debt sustainability, especially in the U.S. However, it cautioned that AI could simultaneously create new fiscal challenges by leading to higher unemployment, increased social outlays, and potentially lower tax revenues.