The U.S. and Japan face "explosive" debt and deficit problems, the deputy governor of the Bank of Canada, John Murray, says.
Those problems will only be made worse as their populations age, Murray told the New York Association for Business Economics Tuesday.
A rise in the average age results in lower growth in tax revenue as the number of pensioners increase and more demand for government spending on such services as healthcare.
The recovery from the 2008 downturn has been "slow and this painful," Murray said, citing still slow growth in the U.S. and Europe.
Despite efforts by central banks to keep interest rates low and stimulate growth, "the deflationary forces in many countries appear to be winning," he said.
"While global growth has not stalled completely, neither is it as strong or as widely distributed as many had hoped."
Deflation is a period of falling prices. In its severe form, where incomes drop faster than debt, the result is economic contraction, business failures and high unemployment.
Less spending in deeply indebted countries has cut into global export sales, Murray said, and capital controls have kept currencies from reflecting where exchange rates would be if they fully reflected market forces.
"We appear to be trapped in the bad scenario. But if the situation continues, it could easily turn ugly."
Murray said to avoid the ugly scenario, the U.S. must bring its budget spending under control, Europe must fix its debt crisis and reform its economies and emerging economies must allow their currencies to reflect global market forces.