IMF Economist Warns of Slow-Growth Future Amid Rising Debt and Geopolitical Tensions
According to the International Monetary Fund (IMF) chief economist, Pierre-Olivier Gourinchas, the global economy may be heading towards a slow-growth future due to record levels of government debt, rising geopolitical tensions, and weak productivity gains. These factors could hinder development in some countries, even before it has a chance to take off.
The warning emerged from research organized by the Kansas City Federal Reserve, which was discussed at a recent event in Jackson Hole, Wyoming. Experts explored various issues, including the outlook for technological innovation, public debt, and the state of international trade. Geopolitical tensions have eroded the once-broad global agreement to boost the free flow of goods and services.
In an interview, Gourinchas highlighted the fragility of the current environment, with countries having used significant fiscal resources to combat the pandemic. Additionally, policy-driven forces such as geoeconomic fragmentation and trade tensions have further added to the challenges. Gourinchas emphasized the potential consequences of some regions being left behind without the opportunity to catch up, leading to substantial demographic and migration pressures.
The IMF chief economist suggested that global growth could settle around 3 percent annually, a figure that some economists consider borderline recessionary. In a world where substantial gains should still be achievable, particularly in large, less-developed countries, such slow growth could have significant implications.
Maurice Obstfeld, a former IMF chief economist and current fellow at the Peterson Institute for International Economics, described the global growth environment as highly challenging in the emerging pandemic economy. He noted that emerging industrial policies in the United States and other countries are reshuffling global production chains, potentially resulting in less efficiency.
The symposium held in Jackson Hole aimed to evaluate longer-term economic developments post-pandemic and in the wake of renewed geopolitical tensions. Economists and policymakers were in general agreement that two pre-pandemic trends have been intensified by recent events.
Firstly, the ratio of public debt to global economic output has risen from 40 percent to 60 percent due to pandemic spending, making serious debt reduction politically unfeasible. While higher-debt, higher-income nations like the United States may be able to manage this burden over time, smaller nations could face future debt crises or binding fiscal constraints. Globally, the diversion of capital from countries with growing populations and less developed economies could have severe repercussions.
The second trend that has endured and intensified is the increasing openness to protectionist policies. From the tariffs imposed by former US President Donald Trump to current efforts to reshore production for national security purposes, trade relations have become more fragmented. The once-prevailing idea that trade fosters durable partnerships and alliances has been challenged.
During discussions, participants acknowledged the importance of ensuring global supply resilience, particularly for sensitive items like pharmaceuticals. However, there is a concern that the reordering of global production patterns may limit growth opportunities. It was argued that diversification should not only aim to do business with like-minded partners but also extend opportunities to those on the margins of the global system.
While there were discussions surrounding the potential of artificial intelligence (AI) to drive higher productivity, concerns were also raised about the possible negative consequences and the increasing difficulty of innovation. The benefits of AI may not materialize quickly enough to address the challenges faced by the global economy.
In conclusion, the current economic landscape presents significant challenges that could lead to a slow-growth future. Rising government debt, geopolitical tensions, and weak productivity gains could hinder development and place countries in a fragile environment. The symposium held in Jackson Hole highlighted the need to address these issues while considering the long-term consequences for the global economy.
