The new era of uncertainty in the world economy could push public debt levels back to their highest since World War II, with the eurozone likely to be among the worst affected, the International Monetary Fund warned on Wednesday.
In its new half-yearly Fiscal Monitor, the IMF forecast that global public debt will rise by 2.8 percentage points in 2025 to around 95 percent of gross domestic product (GDP). It expects a further increase to nearly 100 percent of world GDP by the end of the decade.
Its projections for France and Germany are particularly stark, suggesting that neither country will be able to reduce their budget deficits to levels generally considered sustainable by the end of the decade.
France’s annual deficit, projected at 5.5 percent of GDP in 2025, will hit 6.1 percent of GDP by 2030, at which point its total public debt will stand at 128.4 percent of GDP. By contrast, Prime Minister François Bayrou has promised to bring the deficit down to 3 percent by 2029, in line with EU fiscal rules.
The projection for Germany is somewhat less alarming, due to its more favorable starting point: Overall debt will still be less than 75 percent of GDP at the end of the decade, the Fund reckons. But the IMF still expects the budget deficit to widen steadily from 3 percent of GDP to over 4 percent of GDP by 2030, as Berlin unleashes a flood of infrastructure and military spending. By comparison, in the years before the pandemic the country consistently ran a budget that was either in balance or in modest surplus.
The Fund was also downbeat on the U.S.’s ability to meet Treasury Secretary Scott Bessent’s target of bringing the deficit down to 3 percent of GDP. It said Washington will still be running a deficit of over 5.5 percent of GDP at the end of the decade.
“As significant policy changes and heightened uncertainty reshape the global economic landscape, the fiscal outlook has worsened,” the report reads.
The projections back up the Fund’s repeated criticism of the world’s major economic blocs for allowing geopolitical rivalry to take precedence over free trade and cooperation, a theme that it has rehearsed repeatedly in recent years as relations between the U.S., China and Europe have deteriorated.
As usual, the Fund reminded its constituents of the damage such rivalry will do to poorer countries, arguing that “[t]ighter and more volatile financial conditions in the United States may have ripple effects on emerging markets and developing economies, leading to higher financing costs.”
The Washington D.C.-based institution calculated that a significant rise in global economic uncertainty could push up debt levels by 4.5 percent of GDP in the medium term. In a “seriously adverse” scenario, the IMF warned, debt levels could reach as high as 117 percent of GDP by 2027 — a high not seen since World War II.
One of the few countries where the Fund does expect a meaningful improvement in the fiscal picture over the coming years is the U.K. In an implicit endorsement of Chancellor Rachel Reeves’ efforts to restore stability to U.K. public finances, it sees the deficit narrowing to only 2.3 percent of GDP by 2030, from 5.7 percent last year.
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