Welcome to Talks on the Market.

I'm Chetanaya, Chief Asia Economist for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be sharing some historical

lessons on government debt sustainability and what it means for the current cycle.

It's Monday, July 26th at 7pm in Hong Kong.

Will a debt hangover hamper the global economic recovery?

Since the beginning of the pandemic, governments around the globe have launched an aggressive

fiscal response to the outside's economic shock from COVID-19.

This policy support has laid the foundation for the WeChat recovery that is currently

underway, but it brings with it the challenge of managing public debt in the coming years.

Although public debt ratios are elevated in most parts of the world, the aggressive fiscal

response in the US has placed it at the forefront of the debt sustainability debate.

In the US, large fiscal deficits have lifted the public debt to GDP ratio to post World

World War II highs of about 127%.

And as we move deeper into the recovery, investors are debating whether a debt overhang will

come back to haunt the global economy as it did post 2011.

If we look back to 2008 and the global financial crisis, governments responded to growing

public debt with spending cuts.

However, this premature belt tightening clearly had substantial adverse effects.

Growth was anemic and inflation and inflation expectation remained low.

This low growth, low-flation environment meant that it actually increased the challenges

for public debt ratios to move lower.

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