Government debt has increased significantly worldwide due to the Corona crisis and unrestrained spending by governments. Financial experts predict that inflation will rise as a result of these factors, and investors and savers need to consider how to react.
The world’s total government debt reached a record $315 trillion in the first quarter of this year, with emerging countries like China, India, and Mexico experiencing strong debt growth. While developed countries have seen a reduction in government debt post-Covid, concerns over unsustainable debt levels persist.
The United States is a particular focus for financial market players due to its high refinancing needs and record budget deficits, despite strong economic growth. The US national debt is expected to have a budget deficit of 5.6 percent this year and 6.1 percent next year, raising concerns about its ability to refinance its growing debt.
In addition to government bonds, a considerable portion of corporate bonds worldwide will need to be refinanced in the coming years, with a total of $15.8 trillion in government bond issues expected this year alone. If buyers are not found for these bonds, the debt spiral could spiral out of control.
Investors are advised to diversify their portfolios and focus on real assets such as real estate, gold, or stocks, which are likely to fare better in times of rising inflation. It is crucial for investors to assess their financial obligations carefully and avoid taking on excessive currency risks when investing in bonds or cash. Maintaining flexibility and avoiding high levels of debt are essential strategies for navigating the current economic landscape.
Financial experts suggest that investors should consider investing in emerging markets that have experienced significant growth during the pandemic but also face significant challenges in managing their debts effectively.
Furthermore, central banks worldwide need to balance their efforts between supporting economic recovery and maintaining stable inflation rates while continuing their quantitative easing policies.
In conclusion, the global economy is facing unprecedented challenges due to the Corona crisis and unrestrained spending by governments. Investors need to be vigilant and adaptable while navigating this new landscape by diversifying their portfolios, focusing on real assets, assessing financial obligations carefully while avoiding excessive currency risks when investing in bonds or cash.