S&P says ageing to hit OECD credit ratings

GLOBAL – Standard & Poor’s says that the consequences of population ageing could, on current trends, lead to OECD member countries’ credit ratings collapsing to non-investment grade.

The ratings agency said that, without fiscal adjustment or social security reforms, demographic change would cause the sovereign debt of a typical member of the Organisation for Economic Cooperation and Development to rise to 139% of gross domestic product in 2050.

And the debt of a typical member of the current 15-strong European Union would rise to 164%.

“The consequences of this hypothetical fiscal outcome would be inconsistent with the current high level of ratings on sovereigns covered in this study,” S&P said in a report. It saw a “collective slide down the ratings scale” starting early in the next decade.

“It would continue until the mid-2030s, by which time the vast majority of countries would display fiscal characteristics that today are associated with non-investment grade sovereigns.”

It said this scenario was not a prediction, as it was unlikely that governments would allow debt and deficit burdens to spiral out of control like this. “However, the magnitude of the challenge, as indicated by the fiscal development described, will requite further decisive steps in almost all countries in the sample.”

S&P said a typical country’s deficits would rise to more than four percent of GDP by the mid-2020, with interest costs taking them close to eight percent by 2040 and to more than 10% by mid-century.

Austria, Ireland, Sweden and the UK would do better than average. France, Germany, Portugal, Greece, Poland and the Czech Republic would have debt burdens past 200%. On current trends, Japan would have an “implausible” 400% burden by 2030.

The comments come in a report “The Western World Past its Prime – Sovereign Rating Perspectives in the Context of Aging Populations,” on the S&P web site.

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