High debt levels for countries in the developed world are likely to dampen economic growth in the years ahead, according to a new report from DBRS Limited.

In a commentary published today, Peter Bethlenfalvy, co-president of the rating agency notes that debt levels for the G7 countries are the highest in the world and growing the fastest.

“History has shown us that governments can and do go into default,” he says. “The fact that recent history has seen low rates of default does not mean the next few years will be the same. Furthermore, developed economies are among the highest debtors in the world, and several may be more at risk of negative rating migration than developing economies — a reversal from the last few decades.”

In the past, countries have had a variety of tools to help avoid default. However, a number of these traditional methods, including higher inflation, lower public spending, privatizations, and robust economic growth, may not be available to many developed economies.

Rather, DBRS says that ,”Given the high levels of sovereign debt, financial system debt and household debt, it is likely that significant de-leveraging could diminish private consumption and investment for a prolonged period of time. The hope is that consumption and investment will begin to offset or precede stimulus withdrawal; however, that is far from certain. Indeed, it is not beyond the realm to posit that a dull decade faces the developed economies, if not a dead decade.”

IE