Government debt can be a plus for stocks

Article Excerpt

The COVID-19 pandemic has prompted governments and central banks worldwide to take extraordinary actions to stabilize their financial systems and economies. These actions included massive increases in government spending and drastic actions to lower interest rates. While this may be necessary in the context of the scale of the pandemic, it will have significant future consequences for government debt, interest rates and inflation. Government debt has ballooned Public sector balance sheets were already stretched before the coronavirus crisis and they will soon look much worse. At the end of 2019, the combined government debt of the group of seven largest industrial nations stood at almost 120% of gross domestic product (“GDP”). That was higher than at the end of either the Second World War or the 2008-2009 global financial crisis. This year, with budget deficits set to move sharply higher and GDP much lower, debt ratios will probably rise to over 140% of GDP. In the U.S. and Canada, debt-to-GDP ratios are expected…

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