EU debt, Scope: climate and demography pose long-term risks

EU debt Scope climate and demography pose long term risks

(Finance) – I climatic and demographic risks they have a important impact on medium-term public debt trajectories for most European Union countries. He states it Scope Ratings in a report on the topic, explaining that population aging represents the biggest challenge, potentially increasing public debt by up to 21 percentage points of GDP on average in EU countries until 2050; The climate-related impact of a “disorderly” transition could lead to a further increase in public debt by around 5 percentage points of GDP on average, above the impact estimated in the “orderly” (1 percentage point) or “orderly” scenarios. hothouse” (3 percentage points).

“Climate risks and demographic change are among the most important structural challenges sovereign countries will face in the coming decades and should be effectively understood and integrated into sovereign credit assessments,” he says Thibault Vasseanalyst at Scope Ratings and co-author of the report.

In the report, Scope finds that Europe-wide averages hide large regional differences. The impact of population aging exceeds that of climate-related risks for most countries, except Estonia, Greece, France, Latvia, Finland and Sweden where age-related costs will not increase much in the coming decades.

Climate-related GDP losses primarily reflect i transition risks and are higher in the countries of southof the north and of thewest, while the Eastern and Baltic countries seem more isolated. These differences reflect both different levels of carbon intensity and climate ambition, with more (less) stringent emissions reductions typically assumed in NGFS modeling for higher (lower) income countries.

Scope recognizes that modeling the complex interactions between population ageing, climate change, economic performance and public debt sustainability over very long time horizons involves profound uncertainty and the results of the scenario analysis should be interpreted with caution.

“The scenarios presented in this report are not a prediction of what could happen nor a prescription of what should happen, but offer a narrative of what could happen. As such, they provide useful insights for evaluating the relative exposure of securities sovereign to demographic and climate risks. These projections are useful to the extent that they identify long-term fiscal risks and signal whether fiscal, social and climate policy adjustments may be needed,” he says Arne PlatteauScope ESG analyst and co-author of the report.