The IMF warned that nations, particularly advanced economies with high debt levels, must prioritize budget consolidation as rising interest rates increase fiscal pressure. The organization states that delaying these adjustments will lead to more painful outcomes.
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The IMF warns that one-quarter of European countries must implement annual fiscal consolidation averaging 1% of GDP over the next five years to stabilize debt. This scale of adjustment is comparable to the austerity measures Portugal faced during the troika intervention period.
The European Central Bank projects negotiated wages in the eurozone will grow by 2.7% in the second half of 2026, peaking at 2.8% in the first half of 2027 before slowing to 2.4% in the third quarter. Given inflation reached 4% in October, driven largely by a 20.8% rise in energy costs, the ECB signaled that further interest rate increases may be decided at its next monetary policy meeting in December.
The managing director of the IMF warned during a speech in Singapore that governments must now prioritize fiscal consolidation and that central banks will maintain restrictive interest rates.