Coronavirus nearly doubles debt damage as financial crash – Moody’s

LONDON: Coronavirus will increase debt levels of world’s richest countries by nearly 20 percentage points on average this year, ratings agency says
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s said Monday, almost double the damage seen in the financial crash.

A new report from
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s looked at 14 countries from the United States and Japan to Italy and Britain and assessed how coronavirus-induced economic downturns would damage their finances.

“We estimate that on average in this group, public finance debt -to-GDP ratios will increase by around 19 percentage points, almost twice as much as in 2009 during the Great Financial Crisis.”

“Compared to the GFC, the increase in the debt burden will be more immediate and widespread, reflecting the acuteness and magnitude of the shock posed by the coronavirus.”

Italy, Japan and Britain are expected to experience the largest debt increases at around 25 percentage points of their respective GDPs, while the United States, France, Spain, Canada and New Zealand will see all of theirs increase by about 20 percentage points.

UK data last week showed government borrowing hit a record high in May and a measure of public sector debt exceeding 100% of economic output.

Failure to reduce debt levels would make countries with weaker credit profiles more vulnerable to future economic or financial shocks and sovereign rating downgrades,
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s added.

“The implications of the rating will depend on the ability of governments to reverse debt trajectories before possible future shocks,” the report said.

“Italy and Japan will be particularly dependent on growth trends because the possibility of reducing and maintaining financial balances significantly more solid than before the shock is limited”.

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