Debt-to-GDP Ratio Concern for G20 Countries Trying to Solve Economic Problems

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Researched by Industrial Info Resources (Sugar Land, Texas)--During the last few years of global GDP growth, Group of Twenty (G20) countries have experienced a rise in the percentage of debt-to-GDP ratio, which provides an indicator of the ability of a nation to actually repay its debts. In the U.S., this figure declined virtually every year from the late 1940s to the early 1980s as the economy strengthened and the level of debt remained more or less constant.

At the moment, however, facing shrinking GDP levels and increased amounts of debt -- which has only been increased by a wave of individual stimulus packages -- many countries' debt-to-GDP ratio is set to skyrocket. In an attempt to increase economic activity, many countries are pumping massive amounts of cash into their economies. The consequence of this is, of course, that once the crisis has passed and the economic contraction experienced by many countries draws to a close, the increased money supply previously used to stimulate economies will be floating around in a devalued state, resulting in a sharp rise in inflation. Two G20 countries, Japan and Italy, have debts exceeding 100% of their current GDP - Japan at 173% and Italy at 133%. Both the U.S. and France are close behind with debt-ratios of 73.2% and 72.5% respectively.

Click on the image at right to view a chart showing the breakdown of G20 GDP and debt ratios.

According to the International Monetary Fund (IMF) (Washington, D.C.), many advanced-economy countries can expect to see their gross domestic product (GDP) contract in 2009. The IMF, for example, has predicted that the United States' GDP will shrink 1.6% to $14.1 trillion this year, compared with $14.33 trillion in 2008. The IMF has predicted similar drops for other advanced and developed economies. The GDP of the U.K., for example, is expected to decline 2.8% this year, while Japan's is expected to fall 2.6%. Overall global growth is expected to be only 0.5% in 2009.

Within advanced economies, output is expected to contract 2% this year, the first annual decline since World War II. Buoying some of the declines in these advanced economies is growth in developing countries. The GDP figures of China and India are expected to grow 6.7% and 5.1%, respectively, while those of Turkey and Indonesia have both been predicted to grow 3.5% this year.

Representing the world's economy, accounting for almost 88% of the world's GDP, the G20 met last week in London, to discuss what actions could be taken in order to help combat what the group termed "the greatest challenge to the world economy in modern times." Among the issues discussed were increasing financial-sector regulations and cracking down on global tax havens. Additionally, the G20 has created its own inflationary policies in the form of a $1.1 trillion global stimulus package that includes increasing resources available to the IMF from $250 billion to $750 billion, providing the multilateral development banks that help provide financing for development in emerging economies with at least $100 billion for additional lending, and the allocation of $250 billion to support trade finance.

"We are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs which would otherwise have been destroyed, and that will, by the end of next year, amount to $5 trillion, raise output by 4%, and accelerate the transition to a green economy," the G20 said in a group statement issued shortly after the meeting. "We are committed to deliver the scale of sustained fiscal effort necessary to restore growth."

Noting that last month the IMF had estimated that world growth would rise to more than 2% by the end of 2010, the group's statement said, "We are confident that the actions we have agreed today and our unshakeable commitment to work together to restore growth and jobs, while preserving long-term fiscal sustainability, will accelerate the return to trend and growth." Although these unprecedented actions will certainly help stimulate the global economy in the short term, artificially increasing the availability of funds could inevitably cause a sharp rise in inflation in the future. How out-of-control this inflation becomes will depend on an individual country's own monetary policies and actions as countries continue to attempt to reduce their debt-to-GDP ratios.

While the economy has slowed, both the G20 and IMF see this is as a temporary slowdown before growth for most countries begins picking up again in 2010. Despite this slowdown, industrial project development has certainly not stopped all together, even without stimulus funds being fully allocated. Industrial Info is forecasting that global industrial spending will exceed $4.3 trillion in 2009, including $3.7 trillion for G20 countries. Detailed information on many of these industrial projects can be found in Industrial Info's International and North American Industrial Databases.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.