IMF Warns of Mounting Debt, High Inflation in the West

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Economic Uncertainty

China and India now account for nearly half of the world’s economic growth, the International Monetary Fund (IMF) reported on Tuesday. While Asia’s emerging markets are the “main engine for the global economy,” according to the IMF’s latest World Economic Outlook, U.S. political tensions and Western-imposed tariffs are spurring mounting debt concerns and worrisome inflation.

The IMF report predicts global output to grow at 3.2 percent in 2024 and 3.3 percent next year. These projections are largely unchanged from the forecast that the organization released in April. Much of this growth is expected to come from China’s economy, which the IMF projects will grow at a rate of 5 percent this year—high in comparison to other nations but slower than the 6.1 percent rate that China’s National Bureau of Statistics has estimated. Beijing recorded a strong economic start at the beginning of 2024, but growth slumped in the spring after the country faced a real estate crash.

Political uncertainty and rising protectionism, particularly as the United States and European Union strengthen their tariffs on Chinese goods, could worsen high inflation. Both U.S. President Joe Biden and former U.S. President Donald Trump have embraced tariffs on Chinese electric vehicles, steel, semiconductors, and critical minerals as central components of their reelection bids. “The potential for significant swings in economic policy as a result of elections this year, with negative spillovers to the rest of the world, has increased the uncertainty,” the IMF report said.

Growth in the euro area remains strong, the IMF reported, but high borrowing rates continue to plague EU economies. France’s left-wing New Popular Front coalition, which secured major wins in snap elections earlier this month, has promised policy changes that would increase the nation’s debt, including via raising government spending by roughly $163 billion to pay for a series of reform proposals.

Meanwhile, global inflation remains high despite the IMF expecting levels to decrease from 6.7 percent in 2023 to 5.9 percent this year. This could force central banks to maintain high borrowing costs, even after many of them raised interest rates in 2024 to some of their highest levels in years. “Even absent further shocks, this is a significant risk to the soft-landing scenario,” wrote IMF chief economist Pierre-Olivier Gourinchas.

The United States is forecasted to grow more slowly than previously predicted, largely due to high inflation rates weakening consumer spending. Last week, Federal Reserve Chair Jerome Powell said that U.S. central bank officials need “greater confidence that inflation is moving sustainably” toward the country’s 2 percent target before cutting interest rates, and on Monday, he avoided providing a timeline for any possible reductions. Some analysts have suggested that the Fed could begin lowering borrowing costs as soon as September.

Today’s Most Read

What We’re Following

Attal resigns. French Prime Minister Gabriel Attal and his government resigned on Tuesday after his centrist coalition failed to secure a majority in snap elections this month. Attal will stay on as France’s caretaker leader for the start of the 2024 Summer Olympics, which Paris begins hosting in 10 days. Choosing someone to replace him could take “some weeks” to finalize, President Emmanuel Macron said. No caretaker government in French history has stayed on for more than a few days.

Attal initially offered his resignation last week after the left-wing New Popular Front (NPF) clinched significant wins. Since then, France’s National Assembly has been on the verge of paralysis, with no group gaining an outright majority after the second round of elections. The NPF has urged Macron to choose one of its coalition leaders to be the new prime minister, but the bloc remains unable to decide which member to put forward. The far-left France Unbowed party suspended talks on Monday after accusing the Socialist Party of sabotaging its preferred candidates.

Civilian deaths in Gaza. Israeli strikes killed at least 57 people in central and southern Gaza on Tuesday as bombardments ramp up against alleged Hamas fighters. One attack hit a United Nations school being used as a shelter, according to the Palestinian Red Crescent Society, in which at least five people were killed and eight others wounded.

Another strike targeted a car reportedly transporting a senior member of the Hamas-allied Palestinian Islamic Jihad group. The car was located near al-Mawasi, a designated humanitarian safe zone in the southern Gaza city of Khan Younis. At least 17 Palestinians were killed and around 26 others wounded in the attack. Israel said it was investigating reports that civilians were hit.

Cease-fire talks remain ongoing in Qatar, but some officials warned that Israel’s high civilian casualty count could hinder truce efforts. “We have seen civilian casualties come down from the high points of the conflict,” U.S. State Department spokesperson Matthew Miller said on Tuesday. “But they still remain unacceptably high.”

Quota system under scrutiny. Protests across Bangladesh turned deadly on Tuesday as students demanded that Dhaka end a quota policy on government jobs. Under the system, 30 percent of all government positions are reserved for family members of veterans who fought in Bangladesh’s war of independence in 1971. Tens of thousands of marchers argue that the policy is discriminatory and that hiring should be based on merit.

The quotas were abolished in 2018 following mass student demonstrations, but on June 5, Bangladesh’s High Court ordered the government to reinstate the system. Last week, the Supreme Court suspended the High Court’s order for four weeks. The chief justice asked protesting students to return to classes and said the court would issue a decision in four weeks.

Yet the protests have continued. Local media reported that at least five people have been killed and hundreds of others injured in clashes with police in recent days, including at Dhaka University, the country’s leading public institution. Protesters have defined themselves as apolitical, but Bangladesh’s ruling parties have accused the opposition of receiving a political boost from the demonstrations.

Odds and Ends

Bagels may be the yeast of some people’s worries—but not for South Korean customs officials. Poppy seed confiscations have increased across South Korea in recent months as Trader Joe’s Everything but the Bagel seasoning mix has gained popularity. Seoul banned the tasty mix in 2022 due to it containing poppy seeds, which South Korea classifies as a narcotic. (Poppy seed pods contain morphine, codeine, and thebaine, which are opiate alkaloids. The seeds themselves contain only trace amounts of those substances, but they can become contaminated with higher amounts, depending on how the seeds are harvested and processed.) But a new Japanese fashion trend that encourages young people to wear Trader Joe’s canvas bags is spurring renewed calls to let the Everything but the Bagel seasoning mix enter Seoul.

The post IMF Warns of Mounting Debt, High Inflation in the West appeared first on Foreign Policy.