Global imbalances pose risks in fragmented world economy
Banca d'Italia Deputy Governor Sergio Nicoletti Altimari warned that accumulating global imbalances, including public debt and trade deficits, pose significant risks to financial stability. Speaking in Venice, he highlighted vulnerabilities despite positive global economic performance in 2025.
Mounting public debt fuels global fragility
Global public debt has reached historically high levels, with Japan at 230 percent of GDP, the United States over 120 percent, and China and the United Kingdom around 100 percent.
The euro area stands just under 90 percent.
The International Monetary Fund projects global public debt to exceed 100 percent of GDP by 2030, the highest since 1948. This trend, exacerbated by recent shocks, raises critical issues for markets, monetary policy, and financial stability.
An expansive fiscal policy, while sometimes necessary, can lead to a hardening of the yield curve and increased risk premiums.
High debt levels strengthen the interdependence between fiscal and monetary policy, potentially challenging central bank autonomy if inflation control measures worsen fiscal imbalances.
Europe, despite protective rules, faces a paradox: debt is both too high in some member states and too low for common strategic projects.
Italy's continued adjustment path is crucial.
Widening trade gaps concentrate risks
Persistent current account surpluses and deficits pose a significant risk, widening to 3.6 percent of world GDP in 2024. These imbalances are concentrated: the United States accounts for three-quarters of the global deficit, while China and the euro area contribute half of the world's surplus.
Domestic factors are key.
The US deficit reflects excess spending and a savings shortfall.
China's surplus stems from weak domestic demand and policies favoring exports.
The euro area's surplus reflects high private savings against weak private investment, with capital market fragmentation limiting efficient allocation.
These imbalances carry significant financial stability implications, including risks of capital flow disruptions and adverse debt dynamics.
Beneath the surface, risks accumulate
The speech effectively highlights that positive headline figures mask deeper structural issues in the global economy.
While advanced economies possess tools to manage these challenges, increasing fragmentation and political polarization make addressing these imbalances more complex.
This underscores the critical need for proactive policy coordination to prevent future instability and ensure long-term economic resilience.