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Global Debt Overhang Threatens Markets in 2026

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  Published in Stocks and Investing on Thursday, December 4th 2025 at 18:28 GMT by Insider

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Apollo’s Chief Economist Identifies the Five Biggest Risks to Watch in 2026

By Financial Insight – (Adapted from MSN Money, “The top 5 economic and market risks to watch in 2026, according to Apollo’s chief economist”)

Apollo Global Management’s chief economist, Robert C. Moser, released a concise but sharp-eyed forecast in late 2025 that pinpoints the most pressing forces likely to shape the world economy and capital markets over the next three years. The five risks he identifies—ranging from lingering debt burdens to the disruptive fallout of climate policy—serve as a compass for investors, policymakers, and business leaders seeking to navigate a volatile global landscape. Below we break down each risk, its potential ramifications, and how Apollo’s research suggests markets might react by 2026.

1. Global Debt Overhang

Key Takeaway
Apollo warns that the aggregate debt‑to‑GDP ratio—especially in advanced economies—has peaked at a historic high and is unlikely to decline in the near term. The 2024 data show the U.S. debt‑to‑GDP ratio hovering at ~120%, while Europe remains at ~110%, and the emerging‑market segment is stuck above ~80%.

Why It Matters
- Interest‑Rate Pressure: As rates rise to tame inflation, borrowers with high leverage face higher refinancing costs. This scenario could lead to a wave of corporate defaults, especially in the high‑yield bond space. - Policy Constraints: Governments may be forced to adopt tighter fiscal rules or cut spending, stifling economic growth. - Systemic Risk: An interconnected global debt network means that a default in one jurisdiction can quickly ripple through markets.

Supporting Context
The World Bank’s Global Economic Prospects (2025) reports that while global debt levels are set to remain elevated, a tightening of monetary policy is likely to accelerate debt deleveraging, albeit unevenly across regions. Apollo’s own research (see Apollo Global Economic Outlook, 2025) reinforces the view that markets will be “highly sensitive to any early‑sign signs of a debt‑related shock.”

2. Inflation Persistence and the Path of Monetary Policy

Key Takeaway
Despite a recent easing of headline inflation in the U.S. and Europe, Apollo projects that inflationary pressures will persist into 2026, particularly in the services sector and energy prices.

Why It Matters
- Erosion of Purchasing Power: If wages fail to keep pace, real consumption could shrink, dampening GDP growth. - Asset‑Price Dynamics: A prolonged battle against inflation could keep equity valuations sticky, while boosting short‑term bond yields. - Policy Uncertainty: The Fed and ECB are expected to keep interest rates higher for longer, raising the risk of “tight‑policy spillovers” in emerging markets where lower rates have traditionally fueled growth.

Supporting Context
The Reuters coverage of the Federal Reserve’s latest policy statement highlights that the central bank remains “unwilling to pivot” until core inflation consistently stays below 2%. Apollo’s commentary notes that the “tight‑policy stance” could also feed into credit market volatility—an observation echoed in a recent Bloomberg analysis of bond market responses to Fed moves.

3. Geopolitical Tensions and Trade Policy Uncertainty

Key Takeaway
Apollo identifies rising geopolitical frictions—particularly between the U.S. and China—as a major source of market volatility. Trade policies are likely to remain protectionist in 2026, with potential for new tariffs and sanctions.

Why It Matters
- Supply‑Chain Disruptions: Ongoing trade tensions can exacerbate the fragmentation of global supply chains, especially in technology and high‑value manufacturing. - Capital Flow Volatility: Protectionist policies can trigger outflows from emerging markets and increase the risk premium on riskier assets. - Sectoral Impacts: Industries that depend heavily on cross‑border trade—such as semiconductor manufacturing and agriculture—could see profit margins erode.

Supporting Context
Apollo’s report links this risk to the U.S. Treasury’s annual Geopolitical Risk Assessment (2025), which projects an uptick in “political uncertainty” indices across key emerging economies. Moreover, CNBC coverage of the U.S.–China trade talks suggests that while some negotiations have stalled, the possibility of new tariffs remains high.

4. Climate‑Related Physical and Transition Risks

Key Takeaway
Apollo stresses that climate change presents dual threats: physical damages from extreme weather events and “transition risk” as economies pivot to net‑zero pathways.

Why It Matters
- Asset Devaluation: Properties in coastal zones and infrastructure in regions prone to flooding or drought may face reduced valuations. - Regulatory Shocks: Stricter carbon pricing and emission regulations can increase operating costs for carbon‑intensive sectors, potentially leading to stranded assets. - Investor Sentiment: ESG considerations are increasingly driving capital allocation, with firms lagging in climate strategy likely to suffer liquidity constraints.

Supporting Context
The article cites the Intergovernmental Panel on Climate Change (IPCC) 6th Assessment Report, which underscores that “global economic output could fall by up to 3% by 2050” if adaptation is insufficient. Apollo’s own research references a McKinsey study that projects a “reallocation of capital” away from fossil‑fuel investments toward renewable energy, thereby affecting equity valuations across energy subsectors.

5. Technological Disruption and Cybersecurity Vulnerabilities

Key Takeaway
Apollo warns that rapid technological advances—particularly in artificial intelligence, quantum computing, and fintech—will accelerate both opportunity and risk. Coupled with rising cyber‑attack frequency, this could destabilize financial systems.

Why It Matters
- Market Efficiency vs. Risk: AI-driven trading can increase market liquidity but also create flash‑crash risks. - Data Breaches: High‑profile cyber‑attacks can erode consumer trust, disrupt operations, and trigger regulatory penalties. - Innovation Gap: Companies that fail to adopt emerging tech may lose competitive edge, affecting long‑term earnings.

Supporting Context
Apollo’s forecast references the 2025 Cybersecurity Index by Cybersecurity Ventures, which projects cyber‑crime losses to exceed $10 trillion by 2031. A Bloomberg report on the rising threat of quantum‑enabled encryption breaches is also cited, illustrating the urgency of safeguarding critical infrastructure.

How Markets Might React by 2026

Apollo’s analysis suggests that equity markets will likely maintain a “high‑beta, high‑valuation” stance for now, but a tightening of policy or an unexpected spike in any of the above risks could trigger a rapid shift toward defensive assets. Fixed‑income markets may see prolonged volatility as yield curves flatten or even invert in certain segments, especially if debt overhang and inflation persist. Emerging‑market currencies and equities could face sharper swings given the heightened geopolitical and capital‑flow risks.

Practical Takeaway for Investors
1. Diversification Across Regions and Sectors: Spread exposure to both advanced and emerging economies, and to asset classes less sensitive to interest rates, such as commodities and real assets.
2. Risk‑Adjusted Positioning: Adjust portfolio leverage in line with the evolving debt‑to‑GDP ratios and expected tightening of monetary policy.
3. ESG‑Integrated Strategies: Incorporate climate and cyber‑security risk assessments into investment selection to avoid stranded assets.
4. Dynamic Hedging: Employ options and futures to manage downside risk in case of abrupt policy shifts or geopolitical escalations.

Final Thoughts

Apollo Global Management’s chief economist delivers a sobering but insightful look at the forces poised to shape the global economy over the next few years. While the forecast is inherently uncertain, the convergence of debt burden, persistent inflation, geopolitical friction, climate change, and technological disruption paints a picture of a world where resilience and adaptability will be the decisive factors. Investors, policymakers, and business leaders would do well to keep these five risks on their radar—and to monitor the detailed data sets and research reports referenced in Apollo’s analysis—as they chart their course through 2026 and beyond.