IMF warns of looming debt crisis due to sticky US inflation, potential Federal Reserve rate delays and trade tensions: Global economy at risk

The International Monetary Fund (IMF) has expressed concerns about the impact of sticky US inflation and potential delays in Federal Reserve rate cuts on the global economy. The organization has warned that a dollar rally could lead to government debt strains, especially for developing countries.

The IIF also highlighted the increasing debt pile in the US under President Joe Biden’s administration, despite households in the country reducing their personal loans and credit card debts. While household balance sheets may provide some protection against rising interest rates, government budget deficits remain high compared to pre-pandemic levels.

The IMF echoed these concerns, urging governments worldwide to show fiscal restraint and maintain sound public finances, especially in an election year with the temptation to cut taxes or increase spending. The IIF also raised concerns about rising trade frictions and geopolitical tensions affecting the external debt servicing capacity of emerging markets that have high levels of dollar-denominated debt.

The organization noted that stubborn inflation, particularly in the US, poses a significant risk by increasing global funding costs. Additionally, trade disputes and protectionist policies could hinder economic growth and investment flows, further impacting the ability of emerging and frontier markets to service their debts.

Overall, the IIF is warning about a potential slowdown in global economic growth due to rising inflation, trade tensions, and geopolitical risks. Governments worldwide must take action to address these challenges and maintain stable public finances to avoid a potential debt crisis.