In today’s discussion, we delve into the public finances of emerging economies in 2025, based on an exclusive analysis of our most recent EcoPerspectives issue focused on these economies. With robust but slowing growth, rising public debt and limited fiscal flexibility, what challenges and opportunities lie ahead for these countries?
Since the pandemic, household consumption has evolved very differently between the Eurozone and the United States. In Europe, weak growth in real gross disposable income, moderating wealth effects, and rising real interest rates have dampened demand. In the United States, however, consumption has exceeded what fundamentals would suggest, buoyed by the housing wealth effect and fiscal stimulus. This divergence is likely to narrow, however, with the Eurozone gradually correcting its underperformance, albeit unevenly across countries, while the United States is expected to see an end to its outperformance, without falling into underperformance.
This is my last contribution to Ecoweek before my retirement within a couple of weeks. Looking back at a career in banking and asset management that spans several decades, my main conclusion is that history repeats itself, at least to some degree. When I started in banking in 1987, a hotly debated topic was whether Wall Street had become massively overvalued and my first task was to focus on the sustainability of Belgian public debt. Ironically, today the valuation of Wall Street is again a topic of intense debate and many advanced economies struggle to stabilize their elevated public debt ratio. This reminds us that in the long run, budgetary discipline is of paramount importance. Otherwise, governments will have to confront increasingly difficult choices
In the major advanced economies, public deficits remain high, particularly in the United States, the United Kingdom and France. Interest expenditures are expected to rise in countries where they are currently low – Germany, Japan and France – and stabilise at a high level in countries where they are currently higher – Spain and Italy – without, however, increasing. By 2030, according to our forecasts, the dynamics of the public debt-to-GDP ratio would reflect differences in public deficit scenarios.
The US primary deficit is expected to narrow in 2025 and stabilise at around 1.0–1.5% of GDP in the coming years thanks to higher customs revenues.
Germany's primary deficit is expected to widen over the next two years as a result of the new fiscal strategy, before gradually narrowing between now and 2030.
Despite consolidation, which is set to continue from 2026 until the end of the decade, the primary deficit will remain worse than the stabilising balance. Public debt will therefore increase.
Until 2027, nominal growth (3.2% on average) is expected to remain higher than the apparent interest rate (3.1%) due to an acceleration in real growth (0.9%).
Spain is expected to generate primary surpluses from 2026 onwards.
The primary budget balance has gradually recovered post-COVID, mainly supported by improved growth, but remains high compared to the rest of Europe.
Japan's primary deficit is expected to narrow in 2025 but is likely to increase again to around 2% of GDP in the coming years due to upward pressure on public spending.
Equity indices, Currencies & commodities, and Bond markets.
Key indicators for major emerging countries and their public debt and vulnerability to external financial conditions.
Today's deficits are tomorrow's taxes. Therefore, it is logical for households to save rather than spend the public transfers they receive, since these are incurred through debt and will eventually need to be repaid.
Low in fat, high in fibre, with a large proportion of fruit and vegetables: in terms of health, the virtues of the Mediterranean diet are well-established, but what about in economic terms? For the past decade, the countries of the Economic and Monetary Union (EMU) forming the Mediterranean ‘arc’ (France, Italy, Spain, Greece) have been following a similar diet, aiming to improve their competitiveness. We take a look at this in our Chart of the week.
Monetary easing in Asia and Latin America, but vigilance in Brazil and Central Europe: what risks weigh on their growth?
Since the beginning of the year, China’s economic growth has proved to be more robust than expected. Exports have withstood US tariff attacks and household consumption has recovered thanks to government stimulus programs. However, large clouds are casting a shadow over the picture and are likely to slow growth in the second half of the year. On the one hand, trade tensions with the United States remain high and the tech war continues, even though Beijing and Washington have agreed to extend their truce until November. On the other hand, internal structural problems remain (real estate crisis, labour market fragility, low confidence in the private sector, deflation). Despite this gloomy backdrop, economic policy easing remains cautious
Despite robust growth between April and June 2025 (probably overestimated), the government is stepping up measures to support the Indian economy. The “Goods and Services Tax Council”, which is due to meet on 3 and 4 September, is expected to approve a cut in VAT rates. This measure would counteract the effects of the increase in US tariffs without weakening the central government's finances.
After a long decline of real long-term interest rates in advanced economies, the direction has changed in recent years. The prospect of rising private- and public-sector financing needs is raising concern that this movement is not over. Empirical research shows that the long-run dynamics of long-term interest rates are predominantly driven by economic growth, demographic factors (life expectancy and working-age population growth) and financing needs (public debt and pensions). The first two factors are expected to continue exerting downward pressure, whereas upward pressure should come from the huge financing needs. Empirical estimates of the relationship between long-term interest rates and expected borrowing requirements point towards an impact that should be rather limited, all in all
Broadly speaking, the economic outlook for the global economy at the beginning of September remains largely unchanged from that at the end of July: namely, an economy that, overall, continues to withstand the double blow of US tariffs and uncertainty. Our current scenario expects an average annual growth of 1.6% in the United States in 2025, followed by 1.5% in 2026 and 1.3% in the Eurozone for both years (after 2.8% and 0.8% respectively in 2024). So, while the pace of US growth is expected to remain higher than that of the Eurozone, the outlook is for a slowdown across the Atlantic. On the Eurozone side, however, signs of recovery, albeit tentative, tend to predominate, to the point where the Fed is ready to resume its rate cuts and the ECB is ready to halt them
Considered the safest and most liquid assets in the world, US Treasuries are the first choice of investors seeking security. However, the turmoil that hit their market last April, in the wake of the announcement of new US tariffs, revived memories of the dysfunction caused by the COVID-19 pandemic in March 2020. Despite the magnitude of the shock, the market's loss of liquidity at the time came as a surprise, given Treasuries' safe-haven status. As a matter of fact, more than the shock per se, this fragility is due to structural factors.This first part of our EcoInsight series on Treasuries analyses how the US administration's fiscal plans threaten to exacerbate this fragility
As we enter the second half of the year, and after a first half marked in particular on the economic front by the tariff warinitiated by the United States, we suggest that we pause and look back for a moment. This will allow us to understand the dynamics that have shaped our economies over the last six months. It will also help us to identify to what extent and in what way they will impact the economic outlook for the second half of the year. What scenario should we expect?
Outside the US, GDP growth in the first quarter generally exceeded expectations in the European Union, the UK, and emerging economies, including China. After the surge in imports that preceded the US tariff hike, the backlash in the second quarter will be more limited than expected in most cases. However, it would be premature to sound the all-clear, as three dangers loom: tariffs, inflation, and public debt.
The economic news and highlights of recent days selected by the economists of the Economic Research.
The German government has presented its draft budget for 2025, which is expected to be adopted in September. It is a breakaway budget marked by a clear return to public investment and support for business investment, at the cost of a significant increase in debt. This budget is one of the pillars of Germany's new policy, which should have a rapid positive impact on growth.
