1/8/2012: Some interesting notes on Debt and Growth

Some interesting long-term relations between Government debt and economic growth. No comment, but few stats and charts:

First - levels of debt and levels of growth:

Weak, negative relationship above.

Now, rates of change in debt y/y and growth:

Much stronger negative relationship above. Of course, we would expect that negative growth would lead to growth in debt/GDP ratio due to stimuli and due to simple fact of shrinking GDP.

Here's the matrix of average rates:

What do we have?

• Both debt and economy expanding (pro-cyclical expansion): 144 episodes in 1980-2012 period, debt growth on average is 3.172%pa against GDP growth on average of 2.086%pa.
• Recession counter-cyclical growth in debt against contracting GDP: 43 episodes, average growth rate in debt 8.847% and average growth rate in GDP is -2.389%. 
• Countercyclical contraction in debt during economic growth periods: 123 episodes, with average contraction in debt of -2.582% and corresponding (accompanying) expansion in the GDP of 3.782%

So conclusions: during expansions, debt shrinks, but by less than economy grows. During contractions, debt expands but by more than the decline rate in the economy. Worse than that - pro-cyclicality dominates counter-cyclicality. There are more episodes when debt grows during economic expansion than when debt grows during economic contractions. The average rates of debt expansion during economic expansion are greater than the average debt contraction rate during economic expansions. The gap is on average annually of ca 0.6% of GDP in terms of debt growth exceeding debt contraction during episodes of economic growth.

It is worth to note that EA12 are not unique by a significant margin when compared to Advanced economies sample:

3/1/2012: Government debt - maturity v overhang

There are some good reports on the massive debt rollover in G7 and BRICs in 2012 - see a summary here. That can lead non-economists to confuse total outstanding Government debt with that maturing in 2012. Here's the summary of Government debt projections for G7 and BRICs for 2012 and 2016 based on September 2011 WEO database from the IMF.

So overall:

• Back in September 2011, the IMF projected total G7 Government debt to reach US$43.02 trillion, or 123% of the expected 2012 GDP
• BRICs 2012 Government debt is projected to reach US$4.9 trillion or 34% of GDP
• Total G7+BRIC Government debt outstanding for 2012 is expected to be US$47.92 trillion or 97% of GDP
• The above figures show why public debt in G7 nations is such a concern for the markets and the real economies.
• By 2016, G7 Government debt is expected to rise to US$51.01 trillion or 127% of GDP. These projections are based on rather rosy assumptions that were built into September WEO forecasts and since then have been revised down, although there is no comprehensive database data incorporating these revisions available yet (it should come out in April 2012).
• Absolute debt levels for G7 Governments are expected to rise for all countries except Canada and Germany. Relative to GDP, Government debt levels are expected to rise between 2012 and 2016 in Japan and the US.

So that US$ 7.6 trillion figure of maturing Government debt for G7+BRICs mentioned in the Bloomberg article linked above - that is just 15.9% of the total Government debt of these countries outstanding that matures in 2012. Not to be confused with the whole debt mountain...