Standard & Poor’s Predicts Unsustainable Debt

March 25, 2011 by · Leave a Comment
Filed under: Financial Crisis, S&P, The Ratings System 

In a recently published report by Standard & Poor’s Ratings Services, “Global Aging 2010: An Irreversible Truth,” government debt of countries with advanced economies could reach over 300% of GDP within 40 years.

It is the opinion of Standard & Poor’s that the aging population could dramatically impact the prospects for economic growth while simultaneously facing greater budgetary pressures from increased age-related spending.

To counter this trend, the rising debt, and the negative impact on sovereign debt ratings, European governments have been attempting to make budgetary adjustments and to reform pension and health-care systems. These measures have been facing fierce union protests in France, Greece and most recently Italy.

In their press release, Standard & Poor’s quotes their own credit analyst Marko Mrsnik as saying, “No other force is likely to shape the future of national economic health, public finances, and national policies as the irreversible rate at which the world’s population is growing older. The projected deterioration in public finances between now and 2050 is particularly significant in advanced economies, whereas many emerging market sovereigns outside of Europe will have a slightly more positive trajectory. In these cases population aging is projected to take place against the background of relatively higher economic growth than in advanced sovereigns. However, as the emerging sovereigns develop, with associated widespread changes to the social fabric, government welfare spending may grow faster than GDP as has been the trend in advanced economies during the last half of the 20th century.”

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