Europe will be hit especially hard as the world enters a new era of economic uncertainty that will push public debt to levels not seen in eight decades, the International Monetary Fund (IMF) warned on Wednesday, April 23rd, in its biannual Fiscal Monitor.
According to the organization’s latest forecast, global public debt will rise by 2.8% this year to around 95% of the world’s GDP. It also expects a further increase in the coming years to be close to 100% of GDP by the end of the decade, but in a “seriously adverse” scenario, it might even reach 117% just in the next two years—the highest since the end of the Second World War.
The report primarily blames the three large developed economies—the U.S., the EU, and China—for letting their geopolitical rivalry take precedence over free trade and cooperation, claiming that their escalating trade war will have “ripple effects” severely damaging the developing world as well.
These three will also be significantly affected, but not to the same degree, with Europe’s economic future looking especially grim. The largest economies—Germany and France—could see the biggest setbacks, the IMF warned, with neither projected to reach a “sustainable” debt level by 2030.
France’s annual budget deficit is set to reach 5.5% in 2025, and is projected to end the decade with a deficit of 6.1%—well above the 3% threshold mandated to euro zone countries and France’s unrealistic 2029 target, even with the 1.5% additional legroom allowed to boost defense spending under the ReArm Europe. Accordingly, the country’s debt-to-GDP ratio will rise from the current 113% to over 128% by 2030.
After decades of tight fiscal policies, Germany looks somewhat better, but still not ideal. German public debt will climb from the current 62% to 75% by 2030, while Berlin will close the decade with a budget deficit of at least 4% due to the giant defense and infrastructural spending spree the incoming CDU-SPD government is set to begin.
The U.S.’s goal of reaching a 3% budget deficit is also unrealistic, the report stated, but at least no growth is projected: Washington is set to reduce its deficit from 6.4% to around 5.5% by the end of the decade.
According to the IMF’s figures, the UK is the only major Western economy that might be able to bring its public debt under the “sustainable” threshold, as it’s predicted to reduce its deficit from 5.7% to just 2.3% by 2030.
