The euro zone’s second and third-biggest economies are about to pile on debt again after three years of fixing their pandemic-bloated public finances، the International Monetary Fund said.

Both France and Italy will see borrowings as a percentage of gross domestic product rise in 2024 and then keep creeping up over the coming half decade، the fund said in its World Economic Outlook released in Washington on Tuesday. 

The forecast underscores a more marked change in trajectory from downward to upward، and encompasses a shift in view from October، when officials saw both countries’ ratios staying roughly stable، at least initially. 

Greater investor scrutiny

The shift could invite greater investor scrutiny on two of the euro zone’s biggest borrowers after a benign period in markets when the extra yield on the cost of Italian bonds over German equivalents fell to a two-year low.

France’s debt is set to rise by 1 percentage point this year and reach 115.2% in 2029، according to the IMF’s forecasts. Italy’s ratio will return above 140% in 2025، and increase to 144.9% on that horizon.

“A renewed focus on fiscal consolidation to rebuild budgetary room to deal with future shocks and curb the rise of public debt is appropriate،” the IMF said without specifying either country but featuring both in an accompanying graphic of major economies. “The size of the fiscal adjustment needed to ensure government debt sustainability is large in numerous cases.”

The outlook is more pessimistic than the view of national officials.

A peak for the debt ratio

Last week، Italy released projections showing a peak for the debt ratio at just below 140% in 2026. Unlike its usual such predictions، the numbers didn’t acknowledge potential legislation in coming months which could affect such outcomes.

In France، officials are also confronting a worsening public-finance backdrop. Last Wednesday، the finance ministry said that the deficit will be wider than anticipated، and that the debt ratio will peak next year at 113.1% of output before falling again.

The IMF’s public-finance forecasts focused on Group of Seven countries. They also show debt ratios rising in the UK and the US، while those in Canada، Germany and Japan are seen falling.