Major Central Banks Warn "This Year's Risk is National Debt... Intensifies During Trump 2.0"

UBS Global Central Bank Survey
Concerns Over Record High National Debt Levels
Expected to Worsen if Trump is Reelected

Major central banks around the world have identified record-high national debt levels as the primary threat to the global economy this year. With the "world's biggest event," the U.S. presidential election, less than four months away, they also warned that if former President Donald Trump is re-elected, high-intensity tariff policies could exacerbate inflation and further worsen the fiscal deficit.

Swiss investment bank UBS announced the results of a survey on the main concerns for the global economy this year, conducted on April 11 (local time) among 40 global central bank reserve managers overseeing trillions of dollars in assets.

According to the survey, 37% of central bank managers cited the risks posed by soaring national debt as the main concern for the global economy. This figure is more than double the response rate (14%) from last year's survey.

According to the Institute of International Finance (IIF), global government debt is expected to reach a record high of $91.4 trillion this year. The debt-to-GDP ratio, an indicator used to assess debt repayment capacity, is expected to exceed 100% for the first time since the COVID-19 pandemic. The International Monetary Fund (IMF) also issued a warning in April about the rapidly increasing U.S. government fiscal deficit, projecting it to rise from 6.67% of GDP this year to 7.06% next year. This level is more than three times that of other advanced countries.

The increase in government debt results in higher borrowing costs for central banks and acts as a factor weakening private investment and consumption.

Meanwhile, global central bank managers appear concerned that fiscal deficits will increase further under a scenario where former President Trump is re-elected. This is based on the judgment that the government will incur more debt to curb the reignited inflation.

83% of respondents said that if Trump becomes president, inflation would worsen due to tariffs of 60% on Chinese imports and a universal tariff of 10%.

About 25% of global central bank managers predicted that the annual inflation rate in the U.S. would be between 3% and 4% by June next year, exceeding the Federal Reserve's target of 2%.

Regarding this, Max Castelli, UBS’s Global Head of Markets, explained, “Central banks have monetary policies focused on lowering inflation and tightening, but on the other side (politicians and government officials) are maintaining loose fiscal policies, making it difficult to bring inflation down to target levels.”

The proportion of central bank managers concerned about the "weaponization" of foreign exchange reserves has also sharply increased this year. Major foreign media analyzed that this is due to the weakening of the safe asset status of central banks' foreign exchange reserves after the U.S. and the European Union (EU) froze Russian overseas assets following Russia's invasion of Ukraine in 2022 and redirected those funds to support Ukraine. This has also led to forecasts that the status of the U.S. dollar as the world's key reserve currency will gradually weaken.

This content was produced with the assistance of AI translation services.