IMF: global debt may reach the level of World War II, the Eurozone is under threat
Kyiv • UNN
The IMF forecasts an increase in global public debt to 95% of GDP in 2025 and almost to 100% by the end of the decade. Particularly severe forecasts for France and Germany.
A new era of uncertainty in the global economy could push government debt to its highest level since World War II, and the eurozone is likely to be among the hardest hit, the International Monetary Fund warned on Wednesday, UNN writes, citing Politico.
Details
In its new Fiscal Monitor report for the half-year, the IMF forecasts that global government debt will increase by 2.8 percentage points in 2025 to approximately 95 percent of gross domestic product (GDP). It expects a further increase to almost 100 percent of global GDP by the end of the decade.
Its forecasts for France and Germany are particularly severe, suggesting that neither country will be able to reduce its budget deficit to levels generally considered sustainable by the end of the decade.
France's deficit for the year, forecast at 5.5 percent of GDP in 2025, will reach 6.1 percent of GDP by 2030, after which its total government debt will amount to 128.4 percent of GDP. In contrast, Prime Minister François Bayrou has pledged to reduce the deficit to 3 percent by 2029 in accordance with EU fiscal rules.
The forecast for Germany is somewhat less alarming due to its more favorable starting point: total debt will still be less than 75 percent of GDP by the end of the decade, the Fund believes. But the IMF still expects the budget deficit to steadily increase from 3 percent of GDP to over 4 percent of GDP by 2030, amid Berlin's release of funds for infrastructure and military spending. For comparison, in the years leading up to the pandemic, the country consistently managed a budget that was balanced or with a small surplus.
The Fund also negatively assessed the ability of the United States to achieve the goal of the country's Minister of Finance, Scott Bessent, to reduce the deficit to 3 percent of GDP. He stated that Washington will still have a deficit of over 5.5 percent of GDP by the end of the decade.
"As significant policy changes and increased uncertainty change the global economic landscape, fiscal prospects are deteriorating," the report said.
The forecasts confirm the Fund's repeated criticism of the world's major economic blocs for allowing geopolitical rivalry to prevail over free trade and cooperation - a theme it has repeatedly reiterated in recent years, amid worsening relations between the US, China and Europe.
As always, the Fund reminded its members of the damage that such rivalry would cause to poorer countries, arguing that "tighter and more volatile financial conditions in the United States could have ripple effects for emerging markets and economies, leading to higher financing costs."
The Washington-based institution estimated that a significant increase in global economic uncertainty could lead to an increase in debt levels of 4.5 percent of GDP in the medium term. The IMF warned that in a "seriously adverse" scenario, debt levels could reach 117 percent of GDP by 2027 - a maximum not seen since World War II.
One of the few countries where the Fund expects a significant improvement in the fiscal situation in the coming years is Great Britain. In implicit support of Chancellor Rachel Reeves' efforts to restore stability to the UK's public finances, he sees the deficit shrinking to just 2.3 percent of GDP by 2030 from 5.7 percent last year.
