“Something will have to give”: the IMF sounds the alarm on American debt

The International Monetary Fund (IMF) warned on Tuesday that recent US economic performance was partly the result of the country's unsustainable fiscal practices, creating risks for the global economy.

“The United States' recent stellar performance is certainly impressive and a major driver of global growth, but it also reflects strong demand factors, including a fiscal stance that is inconsistent with long-term fiscal sustainability,” writes the IMF in its report. its latest World Economic Outlook.

“This raises short-term risks for the disinflation process, as well as long-term risks for the fiscal and financial stability of the global economy, as it risks driving up global financing costs,” the text continues. “Something will have to give.”

The IMF projects that the U.S. economy will grow 2.7% in 2024, an upward revision of 0.6 percentage points from January and well above projections for other advanced economies.

“The recent strong performance of the United States reflects strong productivity and employment growth, but also strong demand in an economy that remains overheated,” Pierre-Olivier Gourinchas, chief economist of the IMF, said in a blog post.

“This calls for a cautious and gradual approach to easing by the Federal Reserve,” he added.

Congress voted last spring to suspend the debt ceiling as part of a broader bipartisan deal to limit the government's annual funding through budget caps. At the time, the national debt stood at about $31.4 trillion and has since grown by several billion more dollars over the past year, according to the Treasury Department.

In its Long-Term Fiscal Outlook report released earlier this year, the Congressional Budget Office estimated that the national deficit would increase “significantly relative to gross domestic product (GDP) over the next 30 years, reaching 8 .5% of GDP in 2054”.

The nonpartisan budget watcher cited rising interest costs among the factors driving the projected growth, in addition to “large and sustained primary deficits, which exclude net interest spending.”

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