There are two things said to be certain in life and that is death and taxes. For most of us, that’s generally true. However, we can now add a third certainty into life and that is going to be debt. Debt levels are set to rise to the largest levels in recent history. According to the International Monetary Fund in June the public debt, as a share of GDP in advanced economies, is set to come in at over 130% for this year and next. To put that into some kind of context it means that we are heading to embrace debt levels that are greater than the debt built up from the second world war. Looking at the chart below you can see that the double impact of the Global Financial Crisis and COVID-19 is pushing debt to record levels. This debt will have to be paid eventually.

The problem of ageing

On top of this debt issues that is a further problem heading up. A publication from the Lancet in the UK suggests that there is a falling population that could fall by 9% at the end of the century. This means that there is expected to be a large decline in the numbers of working-age adults. In fact, some countries are projected to be particularly badly hit like Japan, Spain, Portugal, and Thailand which are all expected to see their populations halve by the end of the century. Then the countries which are projected to see 25% population declines are also projected to see a higher ratio of older to younger people. The impact of this is that more of this debt is going to be shouldered by fewer and fewer people as an ageing population raises further spending considerations.

What’s the trade?

At present, there is nothing to trade on. However, the above tells us that there will be moves by more and more governments to start to cap this debt problem while also addressing the population problem. Tax incentives for having children would most likely start coming in. The main concern is that of debt default. As long as the willingness to repay remains, then the debt pile can be reduced. The main risk is if the debt becomes too great and the easiest solution is to just walk away. If this starts to happen risk markets could find they come alive on the risk of defaults. Again, not an issue for now – but may become so in future months and years.

HYCM Lab is a financial analysis source that provides regular insights on how global news affects the markets including forex, commodities, stocks, indices, and cryptocurrencies*. Run by the HYCM team, it equips traders with everything needed to make informed trading decisions.