...Global economy shows resilience, but risks remain, says IMF
WASHINGTON, DC – THE International Monetary Fund (IMF) has revised its global economic forecast upward, projecting moderate growth despite ongoing uncertainties in the global trade environment.
Following a downgrade in April due to sweeping U.S. tariffs on many of its trading partners, the IMF has now upgraded its World Economic Outlook. The global economy is expected to grow by 3% in 2025 and 3.1% in 2026, up from the previous projection of 2.8%.
Pierre-Olivier Gourinchas, the IMF’s Economic Counsellor and Director of the Research Department, told reporters at a press briefing on Tuesday (Jul. 29) that the recent de-escalation in trade tensions has contributed to the improved outlook.
“This resilience is welcome, but it is also tenuous,” Gourinchas said. “While the trade shock could turn out to be less severe than initially feared, it is still sizeable, and evidence is mounting that it is hurting the global economy.”
Gourinchas identified three developments supporting the more optimistic outlook:
-- Export Surge Ahead of Tariffs: A rush of exports to the U.S. before the new tariffs took effect provided a temporary boost to economies in Europe and Asia.
--Easing Financial Conditions: Global inflation has continued to recede, helping to relax monetary policy conditions, consistent with earlier projections.
--Weaker U.S. Dollar: The dollar has depreciated by 8% since January, making global trade more balanced.
The IMF report also highlights modest growth upgrades for most regions this year and next.
Despite the brighter outlook, the Fund warned that global growth remains "disappointingly below the pre-COVID average." Compared to forecasts made before April 2, growth for 2024 has been revised downward by 0.2 percentage points. Global trade as a share of output is expected to decline further—from 57% in 2024 to 53% by 2030.
“The current trade environment remains precarious,” the report warns. “Tariffs could well reset at much higher levels once the ‘pause’ expires on August 1 or if existing deals unravel.”
If trade tensions escalate again, IMF models suggest that global output could be 0.3% lower by 2026.
Additional risks flagged by the Fund include:
- A fragile geopolitical landscape with the potential for supply chain disruptions.
- U.S. inflation pressures rising, particularly as import prices remain high—suggesting that American consumers may ultimately bear the cost of tariffs.
- High public debt and persistent deficits in many countries, which make them vulnerable to tighter financial conditions.
- The importance of maintaining central bank independence to safeguard macroeconomic stability.
- Meanwhile, the IMF called for coordinated efforts to strengthen the global economic framework:
Trade Policy Stability: “Restoring stability in trade policy is essential to reduce uncertainty,” Gourinchas said. He urged all parties to resolve disputes and re-establish clear, predictable trade rules.
Preserving Central Bank Independence: The Fund stressed that independent central banks are vital for managing inflation expectations and sustaining credibility. “The successful ‘soft landing’ many countries have achieved owes much to central banks’ independence,” he added.
Restoring Fiscal Space: Countries should implement gradual and credible fiscal consolidation, even while addressing emerging spending needs.
Boosting Productivity: Structural reforms are necessary to raise long-term productivity and support more robust growth.
