Consumer and National Debt: Weighing Down the 2025 Outlook

As we approach 2025, the global economic outlook appears bullish, with consumers and businesses regaining confidence and governments implementing supportive policies. However, two significant challenges loom on the horizon: consumer debt and national debt. This article explores how these factors may impact the otherwise positive 2025 outlook.

Consumer Debt: A Double-Edged Sword
Consumer credit appetite has been robust in recent years, with credit card balances surging. According to TransUnion, the number of active credit cards in the U.S. reached approximately 554.5 million by Q3 2024, a significant increase from 451.6 million in 2020. However, this growth has been accompanied by rising delinquency rates, with serious delinquency rates projected to reach 2.76% by the end of 2025.

While increased consumer spending driven by credit card usage can boost economic growth, high debt levels also pose risks. Consumers may struggle to manage their debt, leading to defaults and financial instability. Moreover, rising delinquency rates may prompt lenders to tighten credit standards, making it more difficult for consumers to access credit and potentially slowing consumer spending.

National Debt: A Heavy Burden
National debt levels have been rising globally, straining government finances and potentially undermining macroeconomic stability. According to the World Economic Forum, over 50 developing countries spend more than 10% of total revenues on debt servicing. In Kenya, for instance, debt interest payments absorbed almost 60% of total government revenues, leading to deadly protests.

High national debt levels can force governments to cut spending on essential services, such as education and health, as seen in countries where debt interest exceeds these expenditures. To mitigate this, governments may need to implement austerity measures, restructure debt, or seek international relief mechanisms. However, these measures can have negative consequences, such as slowed economic growth and increased social unrest.

Market Reactions and International Borrowing Costs
Rising national debt can lead to increased interest rates, as investors demand higher yields to compensate for the additional risk. This can make borrowing more expensive for governments and businesses, potentially slowing economic growth. Additionally, high debt levels can deter foreign investment, leading to a decrease in foreign direct investment and negatively impacting economic growth.

Navigating the Challenges Ahead
To navigate the challenges posed by consumer and national debt, governments, consumers, and businesses must work together to promote sustainable economic growth. Governments should implement policies that encourage responsible borrowing and lending, while consumers and businesses should prioritize debt management and financial discipline.

In conclusion, while the 2025 outlook appears bullish, consumer and national debt pose significant challenges that must be addressed. By working together and promoting sustainable economic growth, governments, consumers, and businesses can overcome these challenges and secure a prosperous future.