The issue of public finances and their rebalancing has come to the fore, particularly in France, but not only. This problem concerns many other countries, most notably the United States. What can be said, in this context, of the comparative developments in government debt ratios, since 2017, which have been crossed with those of economic growth? How much more debt (under the combined effect of crises and coping measures) is associated with more growth (under the effect of fiscal support)?
Not surprisingly, the picture is mixed, as illustrated by the scatter nature of the different points in our graph based on oursample of 12 countries. Over the two periods considered (2017-2024 and 2019-2024), there is no clear relationship between the change in the public debt ratio (represented on the x-axis) and cumulative growth (represented on the y-axis).
What can be seen, however, is a normal downward and slightly rightward translation of the dots cloud between the two periods. Cumulative growth over the shorter 2019-2024 period is mechanically lower than that including two more years (characterized by strong growth). The last 5 years also include the massive recessive shock caused by the Covid in 2020. If it was followed by a strong economic rebound in 2021 and 2022, there are still scars of the shock. This is true for public debt ratios, which all deteriorated between 2019 and 2024 (with the notable exception of Greece and Portugal and, to a lesser extent, the Netherlands). It should be noted that, between 2017 and 2019, eight countries experienced a decline in their debt ratio (including France, very slightly). While the United States and Japan are among the four countries where it has increased.
Let us focus now on the period 2019-2024. We can see that, for a slightly larger increase in their debt ratio compared to France, the US benefits from a much higher cumulative rise in its GDP. The US, however, emerges quite clearly as the exception rather than the rule. The situation in France appears similar to that in Japan and the United Kingdom, with both a relatively large increase in their debt ratio and a relatively limited increase in GDP. One can observe too that, for a cumulative increase in GDP a little bit higher than that of France, Italy and Spain show a much smaller increase in their debt ratio. Germany, for its part, recorded the lowest rise in the public debt ratio, but it was also the only country, along with Japan, to record the lowest cumulative growth. Finally, Greece and Portugal enjoy high cumulative growth, which contributes to the reduction of their debt ratio in addition to the positive effects of past fiscal consolidation efforts.
To sum up, each country has its own history. Debt may be necessary and useful to support growth, but to some extent. Now is the time for deleveraging. Growth is a facilitator; fiscal consolidation is a necessity.
