FirstFT: Aging Population Hits Government Credit Ratings

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The cost of population aging weighs on public finances. Countries could see significant credit downgrades without radical reforms according to the rating agencies.

With health care and pension costs driving up public spending in developed nations, recent interest rate hikes mean that even small increases in spending could lead to unsustainable debt burdens.

For example, a stress test by S&P Global estimated that a single percentage point increase in borrowing costs in countries like the UK and the US would raise the debt-to-gross domestic product ratio by 40 to 60 percent by 2060. .

“In the past, demographics were a medium to long-term consideration,” said Dietmar Hornung, associate managing director of Moody’s Investors Services. “Now, the future is with us and it’s already hitting sovereign credit profiles.”

Underscoring the need for reform, Greece was the only country out of 81 surveyed by S&P that predicted a decline in age-related spending by 2060. Athens undertook massive reforms to its pension system following a debt crisis more than a decade ago.

Here’s what else I’m watching today:

• Retail earnings: Target and TJX Companies report this morning. Target, which analysts expect to report a 1% increase in first-quarter sales, warned three months ago that weak consumer discretionary spending would weigh on earnings in its current fiscal year.

• US real estate data: Housing Starts data for April is released today. The number of new homes was forecast to have fallen at an annual rate of 1.4 million in April, while a separate report is expected to show the number of new building permits rising to 1.437 million last month.

• Results: Take-Two Interactive, the creator of Grand Theft Auto video game series and technology group Cisco Systems report quarterly results after the closing bell.

Five more top stories

1. President Joe Biden will reduce his schedule for G7 meetings to focus debt ceiling talks with Republicans after “productive” negotiations on Tuesday. Spokesman Kevin McCarthy had told reporters a deal could be possible by the end of the week, but warned there was “a lot of work to do in a short space of time”.

• Explainer: While a deal now seems more likely, a default could be highly detrimental to the economywith the White House estimating that even a short-lived default could wipe out half a million jobs.

2. Tesla “will try some publicity,” says Elon Musk. Responding to investor questions and via Twitter spaces, Musk said Tesla would be interested in running ads which were informative, aesthetically pleasing, and beautiful. The Tesla boss also said the automaker’s self-driving efforts would soon allow owners to lease their vehicles as part of a fleet of robotaxis.

3. South Korea is trying to reduce technology losses to China with three leaks of great technologies only in the first quarter of 2023. The country’s government now has a database of chip engineers to track their journeys and has also tried to make it easier to prosecute potential leakers.

4. The American investment bank The Raine Group will earn 65.5 million dollars if the merger of World Wrestling Entertainment with the Ultimate Fighting Championship is concluded successfully. The bank, launched in 2009, has built his reputation advising on some of the largest sports and entertainment transactionsincluding the sale of Chelsea and the potential sale of Manchester United.

5. The Estonian prime minister said he had to “beg” local companies to turn down lucrative deals which allowed Moscow to bypass Western sanctions. Kaja Kallas said in an interview with the Financial Times that the trade was attracting companies to the Baltic states despite the aggressive stance of the countries on the war in Ukraine.

In-depth news

Thomas Flohr has been heralded as the man who could disrupt the private jet industry. But after 19 years, the billion in debt held by his company VistaJet has EY worried and even caused the German aviation regulator to warn of its ability to continue.

We are also reading. . .

• Turkey: Governments in Europe and the United States are preparing for five more years by Recep Tayyip Erdoğanwhile the unpredictable Turkish leader enters the presidential runoff as a favorite.

• South Africa: More than $15 billion worth of exports are at stake as Pretoria battles the fallout from a US indictment that was secretly supplying weapons to Russia.

• Share buybacks: Share buybacks by companies hit a global record of $1.3 trillion last year, but such schemes are no substitute for thoughtful investment in growth and decent pay for staff. writes Brooke Masters.

Chart of the day

Could the party be over for US shale? A drilling rig that cost $30 million in 2019 is now up for auction with an initial price tag of just $2.3 million. As energy prices begin to stabilize, the number of plants and the people running them is starting to decline, signaling that the industry may be slowing down.

Take a break from the news

Sir Norman Foster, the British architect behind landmarks such as London’s Gherkin, Hong Kong International Airport and the British Museum’s Great Court, is having his first major retrospective at the Pompidou in Paris.

Additional contributions by Gary Jones e Emilia Goldberg