Moody's: Growth among sovereigns remains subdued ten years on from crisis
Notwithstanding an ongoing cyclical growth recovery, the growth outlook for Moody's rated sovereigns remains subdued when compared with the growth achieved in the decade before the financial crisis, says Moody's Investors Service in a new report.
The report Sovereigns - Global Statistical Trends; Ten Years After the Global Financial Crisis: Subdued Growth and Higher Government Debt, is based on the sovereign data presented in the May 2017 issue of Moody's Country Credit Statistical Handbook. It draws conclusions across regions and globally and compares today's global growth prospects, government debt indicators, and monetary gauges to those from a decade ago and before the financial crisis.
Between 2008 and 2017 (F), real growth for Moody's rated sovereigns averaged 2.9 per cent for Moody's, compared to 4.3 per cent from 1998 to 2007. Looking ahead, Moody's expects global growth of 2.8 per cent for 2017 to 2018.
"This slowdown in growth compared to the period prior to the global financial crisis has affected the fiscal profiles of our rated sovereigns," said Michael Brown, an Associate Analyst at Moody's.
"Governments have been unable to rely on growth to reduce debt as a share of GDP."
Since the crisis, government debt metrics have deteriorated across both advanced and emerging market economies. Between 2007 and 2017F, the median increase in sovereign debt was 15 percentage points.
"The increase was due to a combination of spending during and after the crisis and the revenue impact of subdued growth since the crisis," said Shirin Mohammadi, also an Associate Analyst. Moody's expects debt-to-GDP ratios to average 54 per cent globally in 2017-18, compared with 37 per cent in 2007-2008. Since growth has been lower in the years following the crisis, government debt ratios will likely remain at these higher levels for many rated sovereigns.
Subdued growth has kept interest rates low in the years following the crisis. For many sovereigns, low interest rates have supported their capacity to service this higher debt level. Indeed, interest burdens as a share of government revenues have risen less sharply than government debt ratios.