The International Monetary Fund (IMF) has issued a stark warning that the substantial fiscal deficit in the United States poses a “significant risk” to the global economy. In its latest Fiscal Monitor report, the IMF highlighted concerns over the growing imbalance between U.S. government spending and revenue.
According to the report, the U.S. fiscal deficit is projected to reach 7.1 percent of its Gross Domestic Product (GDP) next year, markedly higher than the average 2 percent deficit anticipated for other advanced economies. The IMF cautioned that the massive spending could have profound implications worldwide, urging the United States to address the escalating imbalance.
“The U.S. budget stance creates longer-term fiscal and financial stability risks for the global economy,” stated IMF Chief Economist Pierre-Olivier Gourinchas earlier this week. Echoing these concerns, IMF Managing Director Kristalina Georgieva expressed worry over the strengthening of the U.S. dollar driven by high interest rates, describing it as “concerning.”
The interconnected nature of global financial markets means that fluctuations in U.S. borrowing costs can ripple across economies. The IMF warned that a sudden sharp rise in U.S. interest rates could lead to increased global government bond yields and currency volatility, particularly impacting emerging and developing economies.
“This global spillover effect of interest rates could tighten financial conditions, increasing risks faced by other countries,” the report noted. The IMF identified the United States among four countries that critically need to take policy action to correct fundamental fiscal imbalances.
While fiscal deficits in other advanced economies, such as those in the eurozone, have remained under control, the U.S. experienced a “considerable fiscal slide” last year, with the deficit amounting to 8.8 percent of GDP—more than twice the level in 2022. The IMF’s analysis suggests that without corrective measures, these trends could undermine global economic stability.
The Fund’s call to action emphasizes the importance of sustainable fiscal policies. For countries closely tied to the U.S. economy, especially in Asia, the implications of unchecked U.S. deficits could be significant, affecting trade, investment, and financial markets.
As the global economy navigates uncertain times marked by inflationary pressures and geopolitical tensions, the IMF’s warning underscores the necessity for coordinated efforts to promote fiscal responsibility and safeguard economic stability.
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IMF: U.S. fiscal deficit poses 'major risk' to global economy
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