Stronger-than-expected nominal growth led Morgan Stanley to lower its 2030 debt-ratio forecast for developed economies, but higher interest rates will gradually feed through as old debt matures, and fiscal consolidation remains key to stabilizing debt.
China’s infrastructure investment has shifted from growth in previous years to contraction, while local land revenue and the borrowing capacity of financing vehicles are both constrained. Barclays believes the latest round of leadership transitions could still spur investment, but both its funding sources and destinations will change.
The UK autumn budget introduces modest measures, but rising debt interest costs and recent downgrades to growth forecasts have pushed up the deficit. Goldman Sachs believes tight departmental spending plans will put pressure on next year's spending review.
Real GDP grew 4.5% year over year in the third quarter, and the full-year growth target looks achievable. But fiscal spending fell in the first nine months, prompting Goldman Sachs to lower its full-year augmented fiscal deficit forecast; the bank also expects the central bank to switch its policy rate benchmark next year.
German expansion and the final phase of the recovery fund support growth in 2026, but Goldman Sachs expects the net fiscal contribution to growth to fall to zero in 2027 and turn into a drag from 2028. Rising interest costs, election-related risks of higher deficits and negotiations on a new EU budget together constrain future fiscal space.
Fiscal spending rebounded month on month in September, but remained nearly stagnant year on year, while the decline in property-related revenue widened. Goldman Sachs cut its forecast for the 2026 broad fiscal deficit as a share of GDP from 11.5% to 10.0%. It expects the fiscal drag to ease in the fourth quarter, while the full-year fiscal impulse remains weaker than in 2025.
General public budget revenue fell year on year for the first time this year in September, the decline in land-sale revenue widened, and fiscal spending remained behind the budget target. JPMorgan believes the additional local bond quotas can ease local funding pressures, but there is a lag between bond issuance and project execution, so some support for growth will continue into early 2027.
Nomura believes that, although the decline in broad fiscal spending narrowed in the third quarter, it still weighed on growth. Government bond financing is expected to increase significantly in the fourth quarter, but its actual impact will depend on how the funds are used and the constraints corporate arrears place on complementary financing.
