IMF: Sustained weakening of growth, combined with high interest rates, could jeopardize debt sustainability


A scenario of sustained weakening of growth, combined with high interest rates, could compromise debt sustainability, the International Monetary Fund (IMF) has warned.

Such a scenario could also restrict the ability of governments to counter economic downturns and invest in initiatives in favor of social well-being or the environment, says the international financial institution in a post published Wednesday on its website.

The IMF, which notes that the global economy is facing a “very unexciting” reality, recalls that the global growth rate, net of cyclical variations, has continued to slow down since the global financial crisis of 2008–09.

“Without intervention from public authorities and taking advantage of new technologies, more sustained growth rates risk becoming a thing of the past,” warns the Washington-based financial institution.

Global growth is expected to slow to just over 3% by 2029, according to IMF forecasts, which emphasize that growth could fall about 1 point below its pre-pandemic average level ( 2000–19) by the end of the decade.

This situation threatens to reverse the progress made in terms of living standards, and the unequal nature of the slowdown observed in rich and poor countries could limit the prospects for global convergence of incomes, according to the same source.

Moreover, the anticipation of weak growth could discourage investment in capital and technologies, perhaps to the point of accentuating the slowdown, says the IMF, adding that the strong headwinds of geoeconomic fragmentation as well as trade and industrial measures taken unilaterally only make the situation worse.

Faced with this situation, the Bretton Woods institution notes that various policies, ranging from improving the allocation of labor and capital between companies to combating labor shortages linked to the aging of the population in developed countries, could collectively boost growth in the medium term.

Technological innovation could also limit the slowdown, underlines the IMF. “In the absence of major technological progress or structural reforms, we expect global economic growth of 2.8% in 2030, well below the historical average of 3.8%,” notes the analysis.

Reforms that boost productivity and exploit all the possibilities of AI are essential to revitalize growth in the medium term, continues the same source, noting that targeted public policies aimed at increasing commercial competition, openness to trade, Access to finance and labor market flexibility could boost global growth by around 1.2 points by 2030.

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