Fiscal deficits in advanced economies relative to gross domestic product have reached their highest level since the COVID-19 pandemic, even as government bond yields surge in the United States, Europe and other major markets.
In its October World Economic Outlook released on the 13th, the International Monetary Fund projected that the 41 economies classified as advanced will post a combined fiscal deficit, or net borrowing, equal to 5.2% of GDP this year, the highest since 2021 during the pandemic.
U.S. net borrowing is expected to widen to 8.5% of GDP this year from 7.1% last year, while China's is projected to reach or exceed 8%. The IMF figure for the United States includes state and local government borrowing, making it far higher than the 5.8% federal deficit ratio the Congressional Budget Office projected in February. "Fiscal policy remains loose," the IMF said in the report, noting that deficits in several major economies are historically large.
The IMF said primary fiscal deficits in major economies were considerably larger between 2020 and 2025 than before the pandemic, and that stabilizing debt ratios at last year's levels would require tighter fiscal consolidation than currently planned. Silvana Tenreyro, the IMF's chief economist, said central banks could again face pressure to accommodate more public borrowing or tolerate inflation above target as fiscal costs rise and electoral pressures build.
The concentration of growth driven by the artificial intelligence boom was also cited as a risk. The number of countries accounting for 95% of global growth fell to 32 from 54 in April, according to the IMF. "AI momentum will not lift all economies equally," the fund said.
China's Growth Forecast Cut to 4.5% This Year, Down 0.1 Percentage Point From July
The IMF also lowered its forecast for China's GDP growth this year to 4.5% from 4.6% in July, a cut of 0.1 percentage point. The figure sits at the bottom of the 4.5% to 5.0% growth target the Chinese government presented in its work report in March.
"Solid export performance has only partly offset weaker investment stemming from sluggish domestic demand and continued difficulties in the property sector," the IMF said in the report, adding that higher international oil prices, prolonged uncertainty and structural headwinds would weigh on economic activity.
The fund said Chinese government policy support would prevent a steeper slowdown, but also trimmed its forecast for China's growth next year to 4.0% from 4.1%, a cut of 0.1 percentage point. China's GDP grew 4.7% year-on-year in the first half of this year, according to the National Bureau of Statistics of China. After expanding 5.0% in the first quarter, growth slowed to 4.3% in the second quarter, the weakest pace since the fourth quarter of 2022, when the figure was 2.9% amid the spread of COVID-19.
China's economy is now sharply divided, with exports at a record high while domestic demand remains deeply depressed. The IMF said China's trade surplus hit a record $1.2 trillion last year and could widen further this year. Analysts have pointed out that strong exports are not translating sufficiently into a domestic demand recovery as the divergence in industrial growth within China persists.
Zombie Firms Hold More Than 21% of Corporate Debt in Asia, Including Korea
Zombie companies account for 21.4% of outstanding corporate debt across 10 Asian economies, including South Korea, China, India, Thailand and Indonesia, the IMF said.
That share was below 10% in 2008, meaning it has roughly doubled. The IMF defines a zombie company as one that has failed to cover its interest payments with profits for at least three years. In most cases, such firms survive because banks manage their debts loosely, allowing risk to accumulate across the financial system.
The IMF noted that the share of zombie companies is comparatively low in regions outside Asia. Corporate credit in Asia averaged 107% of GDP at the end of 2025, up from 81% before the 2007 global financial crisis, according to the fund. That is higher than the current global average of 93% and the emerging-market average of 99%.