IMF Managing Director: "US Fiscal Deficit Unsustainable... Trade Sanctions Could Cause Up to 7% GDP Loss"

Attendance at the 'Milken Global Conference 2024'

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), warned that if the U.S. government does not control its massive fiscal deficit, it will significantly hinder economic growth in both the United States and the global economy. She also presented an analysis suggesting that trade sanctions and industrial policies by several countries, including the U.S., the European Union (EU), and China, could reduce the world’s gross domestic product (GDP) by 7%.

Georgieva made these remarks while attending the 'Milken Global Conference 2024' held at the Beverly Hilton Hotel in Los Angeles (LA), stating that the current U.S. spending and fiscal deficit are unsustainable.

Georgieva pointed out, "Currently, about $34 trillion of U.S. debt requires 17% of federal revenue for repayment," noting that this figure has surged from below 7% in 2015.

She said, "Repaying debt that exceeds 17% of revenue is unimaginable," adding, "Such fiscal burdens will shrink necessary expenditures like future debt repayments, and this cannot continue indefinitely." She further explained, "There is an opportunity cost to this money," noting, "These funds do not flow into emerging markets that could create jobs and business opportunities for U.S. companies."

Georgieva reiterated the urgent need to resolve the U.S. fiscal spending issues.

However, she forecasted that the U.S. economy remains strong and will continue to play a pivotal role, considering its innovation, robust labor market, and status as an energy exporter. She especially expects advanced economies, including the U.S., to continue developing over the next decade. In contrast, other countries are expected to stagnate, and low-income countries to fall behind. She said, "Therefore, it is likely that some economies will change, some will stagnate, and others will be caught in constant turmoil." She also noted that technological advancements such as artificial intelligence (AI) could widen the gap between advanced and low-income countries.

She also warned that trade sanctions and industrial policies by various countries could reduce global economic growth rates.

Georgieva stated, "We estimate that trade regulations alone could reduce the world economy’s GDP by 0.2 to 7%, which is comparable to excluding Japan and Germany from the global economy, a truly costly outcome." She added, "I am an eternal optimist," expressing hope that policymakers will revise their policies once they realize their current path leads to a cliff.

Regarding the prolonged period of high U.S. interest rates and the resulting 'King Dollar' (strong dollar), she offered an optimistic outlook.

Georgieva analyzed, "We have experienced very dramatic (foreign exchange) shocks in various regions worldwide, including during the global financial crisis, and every crisis has led countries to build strong fundamentals and fiscal and monetary policies." She continued, "Many emerging markets have wisely prepared contingency plans for foreign exchange reserves and now have much greater resilience than before. They can withstand the current dramatic changes."

Meanwhile, the Milken Global Conference 2024, often called the U.S. version of the Davos Forum, is being held from today until the 9th in Beverly Hills, California, USA. It features over 1,000 speakers and a total attendance of approximately 4,500 people.