Gourinchas also cautioned that government balance sheets are weak coming out of the pandemic, leaving them vulnerable to new shocks. He took particular aim at the US, writing that it’s “concerning that a country like the United States, at full employment, maintains a fiscal stance that pushes its debt-to-GDP ratio steadily higher, with risks to both the domestic and global economy.”

“The worry here is the more short-term funding you have in the structure of your debt, then the more often you need to go to the market and renew that funding,” Gourinchas said in a briefing on Tuesday. “It’s usually cheaper at the short end of the curve, but it is also a little bit riskier.”

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A 0.4 percentage-point upgrade to the IMF’s China growth forecast, bringing it to 5 per cent this year and 4.5 per cent next, was fuelled by a rebound in private consumption and strong exports in the first quarter. The slowdown in the second quarter indicates lingering issues around consumer confidence and the property sector, Gourinchas said in the briefing, adding that the IMF has warned of this risk and now it “seems to be, perhaps, materialising.” The IMF sees growth in the world’s second-biggest economy slowing to 3.3 per cent by 2029.

One possible boost to consumption, investment and growth will come from Beijing’s recent push for trade-ins and upgrades of household and industrial equipment, said Jean-Marc Natal, the division chief of the IMF’s Research Department. “We have been recommending a shift toward consumption in the last few years, and this is one step in the right direction,” he said.

The IMF raised its growth forecast for India to 7 per cent, also on a better outlook for private consumption, particularly in rural areas.

The biggest growth downgrades went to Saudi Arabia, cut by 0.9 percentage points to 1.7 per cent amid oil output reductions coordinated with OPEC+, and Argentina, down 0.7 percentage points to a 3.5 per cent contraction as President Javier Milei enacts severe spending cuts.

Bloomberg

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