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The International Monetary Fund (IMF) has upgraded its growth forecasts for 2025 and 2026, citing eased trade tensions between the US and its trading partners (especially China), a weaker US dollar, and eased financial conditions.
However, global growth is expected to slow compared to 2024, with tariff risks, geopolitical tensions, and rising government deficits, which could threaten economic stability.
US Growth Outlook Improves
The IMF has upgraded its forecasts for US growth for 2025 to 1.9%, up 0.1% from the previous forecast made in April, and 2% in 2026, up 0.3%.
Tax reductions from the US tax bill, or “Big Beautiful Bill”, are expected to boost corporate investment, which could support growth. But the tax bill passed by Congress could also increase the US deficit, adding pressure on high debt levels. ⁽¹⁾
However, inflation could remain high as tariffs and a weak US dollar continue to push consumer prices up in high-import sectors and intermediate goods for producers.
The US effective tariff rate, which is measured by import duty revenue as a proportion of goods imports, has dropped since April, but remains far higher than its estimated level of 2.5% in early January. The corresponding tariff rate for the rest of the world is 3.5%, compared with 4.1% in April. ⁽²⁾
Global Growth Remains Resilient but Faces Risks
The IMF forecasts indicate that global growth will see an expansion of 3% for 2025 and 3.1% for 2026, up 0.2% and 0.1% from April’s forecasts, but remains below 2024’s 3.3% growth.
While growth remains steady, the IMF warns that factors like tariff driven import stockpiling could create risks for growth. IMF Chief Economist Pierre Olivier Gourinchas has stated that global growth remains resilient due to less impactful tariffs than expected. ⁽³⁾
Global inflation is expected to decline to 4.2% in 2025 and 3.6% in 2026, but US inflation might remain above target as tariffs could continue to impact prices. Other risks such as tariffs, geopolitical tensions and larger fiscal deficits could cause financial conditions to tighten further and interest rates to remain high. ⁽⁴⁾
Weak US Dollar Effects
The US dollar has declined more than 9% YTD due to trade war concerns and outflows from US assets. The dollar’s depreciation could make dollar-denominated debt cheaper for foreign multi-national companies and emerging markets, which can provide economic support. ⁽⁵⁾
The IMF also said that companies stockpiling imports ahead of the implementation of the new tariffs had contributed to the decline of the USD, and warned that this stockpiling created “exposures that could amplify the impact of any potential negative shocks”. ⁽⁶⁾
President Trump has also said high US interest rates are raising the government’s refinancing costs by hundreds of billions of dollars.
Trade Policies Shape Global Outlook
President Trump has shaken global trade by imposing a baseline tariff of 10% on nearly all countries from April and threatened even higher duties to kick in on Friday.
Far higher retaliation tariffs imposed by the US and China were put on hold until August 12, with talks in Stockholm leading to a further extension.
The US has also announced steep duties ranging from 25%-50% on automobiles, steel and other metals, with higher duties soon to be announced on pharmaceuticals, lumber, and semiconductor chips.
Gourinchas said the IMF was evaluating new 15% tariff deals reached by the US with the European Union and Japan over the past week, which came too late to factor into the July forecast, but said the tariff rates were similar to the 17.3% rate underlying the IMF’s forecast. ⁽⁷⁾
While the US tax bill and import stockpiling support growth, threats to central bank independence, especially the Federal Reserve’s cautious stance, could bring back volatility into the markets. Gourinchas stated the importance of preserving central bank independence for global economic stability.
