MNI: IMF Sees Soaring U.S. Debt Ratio

The International Monetary Fund on Tuesday listed key U.S. policies as downside risks to the global economy and said Americans will soon start feeling more pain from trade protectionism through higher inflation and unemployment, with U.S. debt spiralling to 143% of GDP by 2030.

Output has held up better than expected this year only because the U.S. stepped back from some of its biggest tariff threats and other nations boosted stimulus policies, the IMF's new World Economic Outlook showed, with growth diminished and risks tilted to the downside. Global growth will slow another tenth of a point to 3.1% in 2026 "decisively below the pre-pandemic average of 3.7%" the IMF said, little changed from the prior forecast from July. 

"As the global economy slides into a more fragmented landscape, risks to the outlook increase," the report said. 

Dangers include trade protectionism, immigration policies that reduce labor supply, loose fiscal policy, repricing of new technologies like AI and "eroding good governance and institutional independence," the report said. 

"There are increasing signs that the adverse effects of protectionist measures are starting to show," the IMF said. "Core inflation has risen in the United States, and unemployment has edged up." (See MNI INTERVIEW:Tariffs Freeze Fed, Court Global Recession-Fatas)

"In major economies—most notably, the United States—a shift toward a more stimulative fiscal stance, including from changes in defense spending in some cases, has also raised concerns about the lack of adjustment toward more sustainable public finances," the report said. Current U.S. policies mean "public debt fails to stabilize" and grows from 122% of GDP in 2024 to 143% of GDP in 2030. That's 15pp higher than the IMF projected in April. 

China's economy also faces potentially major trouble in the IMF's view. "Financial stability risks are elevated and rising as real estate investment continues to contract, overall credit demand remains weak, and the economy teeters on the edge of a debt-deflation trap. Manufacturing exports have buoyed growth, but it is hard to see how this could last."

There will also be a phase of divergence between major central banks facing divergent inflation pressures the IMF predicts:

• "In the United States, the federal funds rate is projected to be reduced along a slightly more front-loaded path than expected in the April WEO, dropping to 3.50–3.75 percent at the end of 2025, still reaching its terminal range of 2.75–3.0 percent around the end of 2028."
• "In the euro area, policy rates are expected to hold steady at 2 percent, which is broadly the same as that projected in April."
• "In Japan, policy rates are expected to be lifted, along broadly the same path as that assumed in April, gradually rising over the medium term toward a neutral setting of about 1.5 percent, consistent with keeping inflation and inflation expectations anchored at the Bank of Japan’s 2 percent target."