Interest Rate-Growth Differential (r-g)

Interest Rate-Growth Differential (r-g) measures the gap between a government's borrowing cost and the pace of its economy. r is the 10-year government bond yield, averaged over the month; g is nominal GDP growth year-over-year. The difference is shown in percentage points. When r-g is above zero, borrowing costs exceed nominal growth. Existing debt compounds faster than the economy that services it, and the debt-to-GDP ratio will keep rising unless the government runs a primary surplus. When r-g is below zero, nominal growth outpaces borrowing costs and the debt ratio can decline on its own.