In 2025-2026, government spending financed by debt has become the main engine of global economic growth. Unlike in past cycles, it is now governments, not the private sector, that are driving GDP growth by expanding budget deficits and increasing obligations. The United States, Germany, Japan, China, Canada, and European countries are simultaneously ramping up public expenditures and shifting fiscal policy perspectives.
The average budget deficit in developed countries hovers around 4.5% of GDP, and in developing countries exceeds 6%, nearly double the level of a decade ago. Total government debt has reached unprecedented levels, approaching the value of global GDP, something last seen after World War II. This is not due to a single crisis but to a mix of structural problems: weak private investment, sluggish productivity growth, and geopolitical instability.
Governments have become the primary actors of economic growth, compensating for cautious consumers and businesses. Expenditures on defense, infrastructure, and social programs are being massively financed by borrowing. For example, Germany shifted away from fiscal conservatism to large-scale investment in vaccination and defense due to the threat of war in Ukraine. Japan deals with growing social spending and the servicing of a huge debt, while Canada and the US direct new resources to maintaining resilience against external challenges.
Worldwide, governments are compelled to invest in security reform, infrastructure modernization, energy transition, and the support of pension and healthcare systems. At the same time, political caution and reluctance to raise the retirement age or cut social spending are leading to increased borrowing. The assumption that investors will keep financing government bonds and that interest rates will fall remains a risk for financial stability.
This fiscal stimulus model may work for a while, but continued debt growth restricts further maneuvering. If economic growth fails to outpace debt accumulation, future generations will face serious questions about financial sustainability and policy choices.
