By David Lawder

Economic Pressures from U.S. Tariffs

WASHINGTON (Reuters) – Economic pressures from steep new U.S. tariffs will push global public debt above pandemic-era levels to nearly 100% of global GDP by the end of the decade, as slower growth and trade strain government budgets, the International Monetary Fund (IMF) said on Wednesday.

The IMF’s latest Fiscal Monitor projected that global public debt will grow 2.8 percentage points to 95.1% of global GDP in 2025. It added that the upward trend was likely to continue, reaching 99.6% of global GDP by 2030.

Global public debt peaked in 2020 at 98.9% of GDP due to governments borrowing heavily for COVID-19 relief and subsequent output shrinkage. Debt fell 10 percentage points within two years, but it has been edging back up, and the latest forecast shows a faster lift-off.

According to the IMF, “Major tariff announcements by the United States, countermeasures by other countries, and exceptionally high levels of policy uncertainty, are contributing to worsening prospects and heightened risks.” This situation leaves governments facing tough trade-offs as their budgets become tighter due to higher defense spending needs, demands for more social support, and rising debt service costs, particularly in the face of potential inflation.

Governments’ annual fiscal deficits are estimated to average 5.1% of GDP in 2025, compared to 5.0% in 2024, 3.7% in 2022, and 9.5% in 2020.

Slower Growth, More Debt

The budget outlook is based on the IMF’s “reference forecast” which estimates a 2.8% global GDP growth in 2023, incorporating tariff developments through April 4. The situation could worsen if steeper tariffs from President Trump and retaliatory measures are enacted.

Debt levels may rise above 117% by 2027 in a severely adverse scenario if revenues and economic output decline more significantly than expected due to tariffs and weakened growth prospects. This level would represent the highest debt share of GDP since World War Two.

Most of the debt growth is concentrated in larger economies. About one third of the IMF’s 191 member countries, which represent approximately 80% of global GDP, have debt growing at rates faster than pre-pandemic levels. Rising pressures could lead to demands for increased social spending, particularly in countries susceptible to trade shocks.

The report notes that a pullback in development aid from the U.S. and other wealthy nations, a continuing trend, means that these countries will face even starker trade-offs.

U.S. Improvement – For Now

The IMF predicts a slight improvement in U.S. annual budget deficits over the next two years, projecting them at 6.5% of GDP for 2025 and 5.5% for 2026, compared to 7.3% for 2024. This improvement is attributed to a combination of increased tariff revenues from enacted measures and continued U.S. economic growth.

The U.S. forecast assumes that the Republican tax cuts from 2017 will expire as scheduled. If extended, experts estimate it could add about $4 trillion to U.S. debt over a decade without offsets.

Furthermore, China’s fiscal deficits are expected to sharply increase in 2025, growing to 8.6% of GDP from 7.3% in 2024, then settling at 8.5% in 2026. The IMF cites economic stimulus expenditure as a reason why China’s growth forecast remains at 4% in 2025, partly alleviating output reductions due to tariffs.

Despite escalating debt pressures, the IMF continues to advise nations to prioritize public debt reduction to build fiscal buffers against future economic shocks. This requires a careful balance in policy decisions, with recommendations for gradual and credible consolidation plans, while allowing automatic stabilizers, like unemployment benefits, to function effectively. New spending needs should be offset either by spending cuts or new revenue sources.