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What Drives Long-Term National Debt Growth?

Published

6 years ago

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What Drives Long-Term National Debt Growth?

What Drives Long-Term National Debt Growth?

With the current 106% debt-to-GDP ratio, there’s no doubt that today’s government debt is high. The last time the United States reached this mark, it was during the aftermath of WWII in the late 1940s.

But despite nearly historic debt levels, it does not seem that the national debt is a key issue for most citizens and groups. What drives this accumulation of debt in the long run, and at what point does the debt level become so high that it becomes an undeniable and critical issue for the country?

Today’s infographic comes from the Peter G. Peterson Foundation, a NYC-based group that focuses on educating people about the fiscal challenges of growing government debt. The graphic illustrates the main factors driving the debt upwards, as well as the potential impact down the road.

Rising Temperatures

The trouble with debt is that it delays today’s challenges well into the future, making it a tempting short-term solution when other things aren’t working. However, over time, that burden increases steadily, and the situation quickly represents the “frog and boiling water” parable.

So what’s raising the temperature of that water?

Right now, the aging of the Baby Boomers is a key factor, and the amount of people receiving social security benefits will swell from 62 million to 88 million people by 2035. At the same time, Medicare’s hospital trust fund will run out of money by 2029, and the program will only remain solvent until 2034.

Whether it’s the growing enrollment in these programs or the rapidly escalating costs of healthcare itself, more money will be put towards Social Security and healthcare over the coming years.

By about 2045, government spending on major health programs will nearly double in size to greater than 9% of GDP.

Boiling Water

Today, interest on the debt is equal to about 1.4% of GDP.

However, if the projected pace is maintained, it’s anticipated that interest payments could be equal to 6.2% of GDP by 2047 – this is roughly 2x the average annual amount the federal government spends on education, infrastructure, and R&D combined.

As economists will point out, the government controls the monetary supply and can easily “print” money to make these payments. This is absolutely true, but it also creates an array of other problems such as inflation and increasing distrust in the monetary system.

Though this boiling point looms further down the road, having a plan to cool the temperature (or to jump out of the water) could be a prudent one to keep in our back pockets.

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Economy

Economic Growth Forecasts for G7 and BRICS Countries in 2024

The IMF has released its economic growth forecasts for 2024. How do the G7 and BRICS countries compare?

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5 hours ago

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April 24, 2024

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Faded horizontal bar chart visualization of G7 and BRICS countries' real GDP growth forecasts for 2024.

G7 & BRICS Real GDP Growth Forecasts for 2024

The International Monetary Fund’s (IMF) has released its real gross domestic product (GDP) growth forecasts for 2024, and while global growth is projected to stay steady at 3.2%, various major nations are seeing declining forecasts.

This chart visualizes the 2024 real GDP growth forecasts using data from the IMF’s 2024 World Economic Outlook for G7 and BRICS member nations along with Saudi Arabia, which is still considering an invitation to join the bloc.

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Mixed Economic Growth Prospects for Major Nations in 2024

Economic growth projections by the IMF for major nations are mixed, with the majority of G7 and BRICS countries forecasted to have slower growth in 2024 compared to 2023.

Only three BRICS-invited or member countries, Saudi Arabia, the UAE, and South Africa, have higher projected real GDP growth rates in 2024 than last year.

GroupCountryReal GDP Growth (2023)Real GDP Growth (2024P)
G7🇺🇸 U.S.2.5%2.7%
G7🇨🇦 Canada1.1%1.2%
G7🇯🇵 Japan1.9%0.9%
G7🇫🇷 France0.9%0.7%
G7🇮🇹 Italy0.9%0.7%
G7🇬🇧 UK0.1%0.5%
G7🇩🇪 Germany-0.3%0.2%
BRICS🇮🇳 India7.8%6.8%
BRICS🇨🇳 China5.2%4.6%
BRICS🇦🇪 UAE3.4%3.5%
BRICS🇮🇷 Iran4.7%3.3%
BRICS🇷🇺 Russia3.6%3.2%
BRICS🇪🇬 Egypt3.8%3.0%
BRICS-invited🇸🇦 Saudi Arabia-0.8%2.6%
BRICS🇧🇷 Brazil2.9%2.2%
BRICS🇿🇦 South Africa0.6%0.9%
BRICS🇪🇹 Ethiopia7.2%6.2%
🌍 World3.2%3.2%

China and India are forecasted to maintain relatively high growth rates in 2024 at 4.6% and 6.8% respectively, but compared to the previous year, China is growing 0.6 percentage points slower while India is an entire percentage point slower.

On the other hand, four G7 nations are set to grow faster than last year, which includes Germany making its comeback from its negative real GDP growth of -0.3% in 2023.

Faster Growth for BRICS than G7 Nations

Despite mostly lower growth forecasts in 2024 compared to 2023, BRICS nations still have a significantly higher average growth forecast at 3.6% compared to the G7 average of 1%.

While the G7 countries’ combined GDP is around $15 trillion greater than the BRICS nations, with continued higher growth rates and the potential to add more members, BRICS looks likely to overtake the G7 in economic size within two decades.

BRICS Expansion Stutters Before October 2024 Summit

BRICS’ recent expansion has stuttered slightly, as Argentina’s newly-elected president Javier Milei declined its invitation and Saudi Arabia clarified that the country is still considering its invitation and has not joined BRICS yet.

Even with these initial growing pains, South Africa’s Foreign Minister Naledi Pandor told reporters in February that 34 different countries have submitted applications to join the growing BRICS bloc.

Any changes to the group are likely to be announced leading up to or at the 2024 BRICS summit which takes place October 22-24 in Kazan, Russia.

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