Global economy faces decade of low growth and rising debt: IMF outlook

Down Angle Symbol A symbol in the form of an angle pointing downwards. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF). Carsten Koall/Getty Images

• A decade of low growth and high debt is ahead, IMF chief Kristalina Georgieva said in a speech on Thursday.
• “Inflation has not yet been completely defeated. The budget buffers have been used up. And the debt has increased,” she said.
• According to IMF estimates, global growth will be just over 3% in the medium term with falling productivity.

The world could soon sink into an era of subdued growth and rising debt, IMF Managing Director Kristalina Georgieva said in a speech at an Atlantic Council event.

“Without a course correction, we are actually headed for the 'lukewarm 20s' – a sluggish and disappointing decade,” she said on Thursday.

“Inflation has not yet been completely defeated. The budget cushions have been used up. And debt has increased, which poses a major challenge to public finances in many countries,” she explained.

The IMF now expects medium-term global growth to reach just above 3% – well below the historical average, Georgieva said. The reason for this is stagnating productivity in all economies, which reduces growth potential:

Although the U.S. economy has largely been a success story following the pandemic, its recovery stands in stark contrast to a widespread slowdown with low-income countries bearing most of the burden.

“The sobering reality is that global economic activity is weak by historical standards. Growth prospects have slowed since the global financial crisis,” she said.

To counteract this, Georgieva called for measures that will significantly reduce inflation and debt and allow governments to take productivity-enhancing measures, such as those that drive digital transformation.

While central banks are generally making progress on price stability, global debt has risen so much that some countries risk falling into distress, Georgieva warned. Although higher debt is not a new trend, the return of high interest rates has made servicing debt globally challenging.

“In advanced economies, excluding the U.S., interest payments on government debt will average about 5 percent of government revenue this year,” she said. “But the cost of servicing debt is most painful in low-income countries. Their interest payments average about 14 percent of government revenue – about double the level 15 years ago.”

With some countries already in a debt crisis, Georgieva called for improved restructuring programs. She advocated fiscal prudence for all countries, recommended closing tax loopholes and improving public spending.

This may be crucial as the IMF predicts that deficits in a third of developed and emerging economies will remain too high to stabilize debt.