US default to have ‘very serious repercussions’ on global economy

Photo by Nik Shuliahin on Unsplash
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The International Monetary Fund said that a US debt default prompted by failure to raise the country’s debt ceiling would have “very serious repercussions” for the US economy as well as the global economy, including likely higher borrowing costs.

IMF spokesperson Julie Kozack also said that US authorities needed to stay vigilant on new vulnerabilities in the US banking sector, including in regional banks, that could emerge in the adjustment to a much higher interest rate environment.

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Kozack said the IMF could not immediately quantify the impact that a US default would have on global growth. The Fund in April forecast global GDP growth at 2.8 per cent for 2023, but said that deeper financial market turmoil, marked by a severe pullback in asset prices and sharp cuts in bank lending, could slam output growth back to 1.0 per cent.

But she said higher interest rates could be one result of a US default and some broader instability in the global economy. “We would want to avoid those severe repercussions,” Kozack said. “And for that reason, we again are calling on all of the parties to come together, reach consensus and resolve the matter as quickly as possible.”

Janet Yellen warns of debt ceiling ‘catastrophe’

US Treasury Secretary Janet Yellen has warned a failure to raise the US’s debt ceiling could have dire consequences.

Without an agreement to increase what the federal government can borrow, it could run out of money by early June.

At that point the federal government might not be able to make wage, welfare and other payments.

“It’s Congress’s job to do this. If they fail to do it, we will have an economic and financial catastrophe that will be of our own making,” she said.