The global economy will expand slower than it has in the past as public debt climbs and some advanced economies struggle to rein in their borrowings, according to the Reserve Bank of Australia (RBA).
Although high debt ratios have not necessarily been an insurmountable problem in the past, several governments would find it hard to reduce their liabilities in the future, RBA governor Glenn Stevens said.
"In some countries demographics are working the wrong way, with population growing more slowly or even declining," he said.
"Other things being equal, future growth of nominal GDP (gross domestic product) will thus be lower than in the past."
He said there have been occasions where public debt has been much higher than 100 per cent in the past in several countries, including Australia.
"Many countries found themselves with such a situation in the aftermath of World War II," he said.
"Those ratios thereafter came down steadily though it took until the 1960s in our case, or longer in some others, for them to reach levels like 50 per cent or 60 per cent that today is often regarded as a sort of benchmark."
He said big deficits of the war years were temporary, as economies experienced good average rates of output growth in the long post-war boom and had strong increases in population and productivity.
"A period of rapid catch-up growth in income, which helped Europe and Japan in the couple of decades after 1950, is more likely in the future to occur in the emerging world than in parts of the developed world where most of the debt is," Stevens said.
WAM Capital portfolio manager Geoff Wilson said sharemarkets around the world would continue to fall in the new financial year as the United States, Japan and Western Europe looked to drastically reduce spending.
"The measures taken by these governments will stymie global growth. We believe this will weigh heavily on equity prices around the globe, including Australia," Wilson said.
