Fitch sees developed-market debt above $75tr

IMF warns AI bust could cut global GDP by 1.1%, says prolonged war could halve 2027 growth

BANGKOK/ LONDON:

Rising government bond yields are making it much harder for major developed economies to stabilise debt burdens, with countries including France, the US and Britain facing growing fiscal challenges, credit rating agency Fitch said on Tuesday.

In a report, Fitch said benchmark 10-year government bond yields in the world's 10 largest developed economies had risen by an average of 81 basis points so far this year. That would contribute to a nearly $4 trillion increase in overall developed-market government debt, taking it above $75 trillion, or $68.5 trillion across the top 10 economies.

IMF warns on AI, debt, ME war

The International Monetary Fund (IMF) on Tuesday flagged significant growth and financial stability risks from a potential ending of the AI investment boom, growing debt levels and a prolonged Middle East conflict.

The IMF forecast global growth at 3.1% for 2026, a slight uptick from a 3.0% forecast in July as still-strong AI infrastructure investment offset higher oil prices caused by the war in the Middle East.

The latest World Economic Outlook report, released in Bangkok during the annual meetings of the IMF and World Bank, also predicts 3.4% growth in 2027, but that is based on assumptions that the Strait of Hormuz reopens by March and shipping conditions return to the pre-war situation by October 2027.

A more protracted war that kept oil prices above $130 through the first quarter of 2027 would cut growth next year by half a percentage point, the IMF said.

In another downside scenario, the IMF said that a steep drop in AI investment could lead to a sharp fall in asset prices, ultimately cutting global GDP by 1.1% by 2028, including a 1.8% drop in US output.

It would also lead to reduced trade, IMF chief economist Silvana Tenreyro said. Trade in AI goods grew 29% between 2023 and 2025, more than triple the 8.3% growth rate of global trade over the same period. Without the AI trade, overall growth in trade would have been only 4.6%, she said.

The debt vulnerabilities of many developing economies are a "major barrier" to inclusive growth, said Nigerian Finance Minister Taiwo Oyedele, who chairs the Group of 24 developing nations, warning that member governments were increasingly contending with mounting debt burdens.

Oyedele said estimates showed that developing countries were paying $500 billion more for their debt than developed countries, even as they contend with growing deficits.

"France, Germany, the US all need to do fiscal consolidation, but they're moving in the opposite direction," said Josh Lipsky, vice president of international economics at the Atlantic Council.