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Key Takeaways
- The U.S. economy has grown faster than other developed countries in the wake of the COVID-19 pandemic, partly due to its policy of deficit spending, the IMF says.
- The financial arm of the United Nations credited the U.S. with powering the global economy while warning that the national debt poses financial risks both in the short and long term.
- The national debt has grown in recent years because spending on COVID-19 stimulus and infrastructure has been funded by debt instead of new taxes.
The U.S. economy has led the world in recovering from the COVID-19 pandemic—but that performance is largely due to heavy government spending that may be unsustainable in the face of mounting debt, according to the International Monetary Fund.
The financial arm of the United Nations leveled the criticism of U.S. policy in an economic outlook report Tuesday, warning that spending deficits pose risks to the global economy.
“The exceptional recent performance of the United States is certainly impressive and a major driver of global growth, but it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability,” IMF economists wrote.
By almost any measure, the U.S. has outperformed other developed countries in the post-pandemic era. The Gross Domestic Product, a measure of total economic output, has beaten expectations in recent quarters while Europe and Japan have stagnated. Meanwhile, the U.S. national debt has grown to $34 trillion and counting.
Government debt ballooned during the pandemic as presidents Donald Trump and then Joe Biden signed bills sending out relief checks and other measures to stimulate the economy through the COVID-19 downturn. Since 2021, Biden has spent heavily on infrastructure, green energy, and social programs. While both Democrat and Republican politicians have talked up the need to reduce deficits, the two parties disagree on how and have compromised by letting debt accumulate.
That approach risks stoking inflation in the short term and poses financial risks for the global economy down the road, especially if interest rates remain high, the IMF warned.
“Something will have to give,” the economists said in the report.