OECD warning on government bond debt and other economic stories to read

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Kate Whiting, Senior Writer, Forum Agenda

• This weekly round-up brings you the latest stories from the world of economics and finance.
• Top economy stories: OECD warns government bond debt will rise in 2024; Germany’s industrial output grows but recession in the forecast; largest drop in Japanese consumer spending in 35 months.

1. OECD expects government bond debt to rise in 2024

The Organization for Economic Co-operation and Development (OECD) anticipates total government bond debt across its 38 member countries will climb to $56 trillion in 2024, up from $54 trillion in 2023. This is an increase of $30 trillion compared to 2008.

The OECD’s Global Debt Report 2024: Bond Markets in a High-Debt Environment said the US accounts for approximately half of the projected $56 trillion debt figure, double its share compared to 2008. The European Union represents around 20% of the total, while Japan makes up 16% and the UK constitutes 6%.

At the end of 2023, the total volume of sovereign and corporate bond debt was almost $100 trillion, similar in size to global GDP.

Around 40% of sovereign bonds and 37% of corporate bonds globally will mature by 2026. This pending refinancing will require further borrowing from markets amid higher interest rate levels.

“A new macroeconomic landscape of higher inflation and more restrictive monetary policies is transforming bond markets globally at a pace not seen in decades. This has profound implications for government spending and financial stability at a time of renewed financing needs,” OECD Secretary-General Mathias Cormann said.

“Government spending needs to be more highly targeted, with an increased focus on investments in areas that drive productivity increases and sustainable growth. Market supervisors need to monitor closely both debt sustainability in the corporate sector and overall exposures in the financial sector.”

2. German industry grows in January, but recession in the forecast

Germany’s industrial output exceeded expectations in January, signalling a potential end to a prolonged manufacturing recession, Reuters reports.

Data from Destatis, the federal statistics office, revealed a 1.0% increase from the previous month, surpassing analysts’ forecast of 0.6%.

However, the data also showed that the industry is still facing challenges, as indicated by revised figures and a lack of significant rebound.

It comes as economic institute DIW Berlin forecast a recession at the start of the year. GDP is expected to contract by 0.1% in the first quarter, according to DIW, after the economy shrank by 0.3% in the final three months of 2023.

“As inflation continues to decline, private consumption will again become the main driver of the economic upswing from the second quarter onwards,” DIW’s Timm Boenke said.

3. News in brief: Stories on the economy from around the world

Consumer spending in Japan experienced a significant decline in January, marking the largest drop in 35 months, government data shows. Household spending in January dropped by 6.3% compared to the previous year, lower than expected, and continuing its downward trajectory for the 11th consecutive month.

US Federal Reserve Chair Jerome Powell has said interest rate cuts may still be possible in the future, but only if supported by evidence of decreasing inflation. The focus of the Federal Reserve remains on maximizing employment and maintaining price stability, he told the House Financial Services Committee.

European Central Bank policymakers are in support of an interest rate cut due to inflation falling faster than anticipated in the Eurozone. Central bank governors from Germany, France, Finland, and Lithuania all expressed support for lowering borrowing costs from record highs. It comes after ECB President Christine Lagarde hinted at a rate cut on 7 March.

Meanwhile, the Bank of Canada maintained its key overnight rate at 5% as expected, stating that underlying inflation was too high to consider a cut. Speaking to Reuters, Governor Tiff Macklem acknowledged the slow impact of monetary policy and declined to provide a timeline for rate cuts.

CENTRE: FINANCIAL AND MONETARY SYSTEMS

How is the World Economic Forum improving the global financial system?

Egypt has finalized an $8 billion deal with the International Monetary Fund (IMF). The central bank has loosened its currency restrictions and raised interest rates by 600 basis points to help stabilize the economy. It will also receive a $1.2 billion loan for environmental sustainability, bringing its total IMF funding to over $9 billion.

The UK’s Chancellor of the Exchequer, Jeremy Hunt, announced a £10 billion tax cut for 27 million workers in his annual budget. This is the second tax cut in under four months, ahead of a national election expected later this year. The cut will be worth about £450 a year for employees.

4. More on finance and the economy from our blog

Central bankers worldwide are navigating persistent headwinds and volatility, while also searching for the elusive neutral or natural rate of interest. Expectations for high inflation rates have been pared back across all regions this year, increasing the emphasis on a rate that represents a steady state for the economy. Here’s what you need to know the neutral interest rate.

Private capital is used to fund all kinds of enterprises throughout the economy – from real estate and infrastructure companies to ventures working on AI and the energy transition. As higher interest rates bite, here are five private market investment trends to expect in 2024, writes Natalya Guseva, Head of Financial Markets and Resilience Initiatives at the World Economic Forum.

Women’s health issues can lead to economic losses of around $23 billion annually in Japan. Menopause can directly influence a resignation decision hindering the number of women accessing leadership positions. Closing this ‘gender health gap’ would enable more women to join the workforce, potentially boosting the global economy by $1 trillion, write the Forum’s Kiriko Honda, Interim Chief Representative Officer, Japan, and Naoko Tochibayashi, Communications Lead, Japan.