Evgeny Goryunov, Head of the Monetary Policy Department at the Gaidar Institute, believes that a default in the USA is unlikely in the near future, but this scenario has become noticeably more realistic. The expert gave his assessment in a commentary for TASS, commenting on the annual report of the Bank for International Settlements.
“There are many problems in the global economy, and they are structural, unlike the problem of the US President Donald Trump’s policies, as the BIS economists rightly point out in the report. The combination of weak growth (growth rates are falling everywhere — not only in developed economies, but also in China), high debt burden on government budgets and relatively high interest rates make the situation unsustainable, as the risks of defaults or inflationary spikes — as a form of default when debt is repaid by issuing debt — are growing. This does not mean that we should expect a default in the US in the near future, but this scenario has become noticeably more realistic over the past year,” the expert said.
He also added that the main crossroads is related to a possible
Evgeny Goryunov noted the aggressiveness of Donald Trump’s demands at the initial stage of negotiations with US trade partners and the transition to more reasonable and moderate positions later on. “This means that with high probability the increase in duties will not be as radical as announced in advance, and with the leadership of the Fed (at the moment Trump says that the Fed’s policy should change radically) the administration will also manage to come to a compromise,” the expert said.
If such a scenario is realized, the world economy, according to Evgeny Goryunov, will return to a state close to 2023, “with somewhat, not too significantly shaken confidence in the dollar.” “This does not mean that everything will normalize, but it does mean that the level of uncertainty will decrease somewhat and will remain elevated until the current president is replaced by another less eccentric figure,” the expert added.
“By all measures, the current situation in the world economy is characterized by an extremely high level of uncertainty. In this sense, we can agree with BIS Chief Carstens. At the same time, I would not say (yet) that the “era” of increased uncertainty and unpredictability is at hand. After all, the main source of uncertainty today is the US administration and specifically President Trump, whose policy, not only economic, is extremely unpredictable,” summarized Evgeny Goryunov. He also emphasized that this is a temporary factor, as Trump’s current term will be his last, and the next administration will probably be more moderate and balanced in its rhetoric and decisions.