Briefing Note

Vanessa Rossi
  • Fast rising government deficits and debt across the major economies are leading to the possibility that the average public sector debt/GDP ratio for the OECD could be as high as 100% in a few years time.
  • The US may well be at 75% by the end of 2009 and if the government's deficit remains in the 5-15% of GDP range over the next three to four years, then its debt/GDP ratio will quickly reach 100%.
  • Similarly for leading Euro area economies France and Germany, they could end 2009 with an equally high debt ratio of about 70-75%. With continuing deficits of 3-5% of GDP over the next five years, they too could reach 100%.
  • Japan already has a debt/GDP ratio of 170% (100% for net debt) and yet it will run a large deficit in 2009 and for the foreseeable future.
  • Yet the country under imminent threat of a debt downgrade, losing its AAA status, is the UK, in spite of it enjoying a previously lower debt ratio, of around 50%.
  • This downgrade threat makes little sense - except that the UK has somehow allowed itself to fall into the position of OECD punch bag.
  • This briefing note argues that the UK should have more actively opposed previous examples of the UK economy being pilloried and placed at the bottom of the league tables for the OECD member states performance - the repercussions of allowing the UK economy to become the 'whipping boy' could be more costly to the UK than expected.
  • The UK needs to be more pro-active to avoid this trap.