Global investment manager Standard Life Investments, in its report Defusing the Fiscal Timebomb, said developed nations with high debt could be in trouble if forecasts for economic recovery did not eventuate.

"Our analysis finds that public finances are highly vulnerable to a shock to these optimistic forecasts," the report said. "A hypothetical recession in 2017 would punch another hole in public finance positions in the developed world. For the group of countries entering the downturn with already dangerously high debt levels, their public finances would look even more unsustainable.

"While the current economic environment is challenging, the clock is ticking on the next global downturn."

The report divides countries into four categories based on their level of vulnerability.

1. Greece, Ireland, Italy, Japan and Portugal were most vulnerable. A recession would derail Greece's attempt to reduce debt, increasing it to 163 per cent of gross domestic product (GDP) by 2020. "The story is similar in Ireland, Italy, Japan and Portugal. This shows just how hard it can be to lower public debt when it has risen to extremely high levels. With the exception of Japan, these countries would probably lose access to market financing in this environment."

2. Countries with debt of about 100 per cent of GDP, including the United States, the United Kingdom, Canada, Spain and France. In a recession, "sharp declines in nominal growth are painful and small primary surpluses quickly switch to deficits".

3. Countries with high debt that weather the recession well, primarily Germany, Austria and Belgium. "This partly reflects their strong primary surplus position heading into the downturn, alongside already conservative nominal growth expectations."

4. Countries with low debt, including Australia, New Zealand, the Scandinavian economies and Switzerland. "While they see debt ratios rise during the downturn, aggregate debt positions do not rise to a level that would provide cause for concern, unless the economic shock was much more asymmetric."

The report recommended that countries with high debt increase their economic growth through further monetary stimulus, temporary loosening of fiscal policy, productivity growth, raising public infrastructure investment, tax reform and improved fiscal planning.

The paper urged caution against a number of policy tools, including artificially lowering interest rates to keep debt repayments low and printing money to pay off debt. Quantitative easing was acceptable provided the balance sheets of central banks eventually returned to normal size.

In the worst-case scenario, much of the Eurozone might be forced again into economically damaging and socially disruptive pro-cyclical policies, the report said. "Debt restructuring or write-downs mayalso need to occur. Although such moves would be highly politically contentious, the alternatives, such as outright defaults triggering Eurozone exits, would be even more unpalatable."