J.P. Morgan warns global interest rates to spike on deficits, depopulation
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J.P. Morgan analysts led by Joyce Chang warned that global interest rates are set to rise due to widening fiscal deficits and declining populations. The note highlights that global public debt has reached $100 trillion, reducing fiscal space and driving up borrowing costs. The U.S. remains relatively insulated but faces risks from geopolitical setbacks.
The Six D's Framework
J.P. Morgan's note outlines six factors shaping the global economy: deficits, deregulation, de-carbonization, de-population, de-globalization, and de-dollarization. Among these, deficits and de-population are identified as the primary drivers of upward pressure on interest rates. The analysts note that a global breakdown in fiscal discipline is occurring across all regions, with fiscal dominance eclipsing monetary policy.
Fiscal Deficits and Debt
Global public debt has reached $100 trillion, according to J.P. Morgan, reducing fiscal space and elevating deficits. The U.S. fiscal deficit remains unsustainable, but the country benefits from greater fiscal space than others. However, any dramatic military, political, or economic setbacks could undermine U.S. creditworthiness. The IMF reported that governments have relied heavily on fiscal stimulus during the Iran crisis, without offsetting measures.
Depopulation Pressures
Advanced economies face declining birth rates and aging populations, leading to a smaller labor supply. Demand for pension and healthcare expenditures is rising, while public investments in defense, renewable energy, and infrastructure also intensify. J.P. Morgan warns that these demographic trends will further strain fiscal resources and push interest rates higher.
What's Next
The IMF is expected to release its next World Economic Outlook update in October, which may incorporate these fiscal and demographic trends. It remains unclear whether governments will adopt fiscal consolidation measures or continue stimulus policies amid geopolitical tensions.
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J.P. Morgan warns global interest rates to spike on deficits, depopulation
