IMF Upgrades Global Growth Forecast Amid Signs of Easing Trade War Impact

Strategic Insights -

The International Monetary Fund (IMF) has upgraded its global growth forecast, citing signs that Donald Trump's trade war will have less of an impact on the world economy than feared. The fund's updated World Economic Outlook shows that global growth is expected to be 3 per cent this year and 3.1 per cent in 2026, up from projections published in April of 2.8 per cent and 3 per cent respectively. The IMF's Chief Economist, Pierre-Olivier Gourinchas, attributed the upgrade to a "tenuous resilience" in the global economy, despite the chaotic rollout of steep tariffs on US trading partners.

Key Takeaways:

  • The IMF has upgraded its global growth forecast to 3 per cent this year and 3.1 per cent in 2026, up from 2.8 per cent and 3 per cent respectively, citing signs of easing trade war impact.
  • The two largest economies, the US and China, have both received upgrades, with the UK expected to be the third-fastest-growing G7 economy this year and next after the US and Canada.
  • Companies have "frontloaded" imports ahead of the implementation of trade levies, boosting growth in 2025, but creating "exposures that could amplify the impact of any potential negative shocks".
  • The weaker US dollar has helped to prop up the world economy, easing global financial conditions by making dollar-denominated debt cheaper to service.
  • The IMF has warned that attacks on the Federal Reserve's independence, such as those made by Donald Trump, could prove damaging, introducing macroeconomic, monetary, and financial volatility.
  • The IMF's forecast marks a shift from its WEO in April, which warned that the trade war risked pushing the global economy into a "significant slowdown".
  • Global growth is expected to slow down, from 2024's 3.3 per cent to 2.8 per cent in 2025, and 3 per cent in 2026.
  • The average growth rate before the pandemic was 3.7 per cent, highlighting the ongoing economic impact of the pandemic.

Statistics:

  • 3 per cent: Global growth forecast for this year, up from 2.8 per cent in April.
  • 3.1 per cent: Global growth forecast for 2026, up from 3 per cent in April.
  • 24 per cent: Effective tariff rate on imports into the US at the time of the April forecast.
  • 17 per cent: Effective tariff rate on imports into the US as of now, a decrease of 7 percentage points.
  • 9 per cent: Fall in the value of the US dollar against a basket of peers, including the euro and the pound, this year.
  • 3.3 per cent: Global economic growth in 2024.
  • 3.7 per cent: Average global growth rate before the pandemic.

Sources:

  • The IMF's updated World Economic Outlook (no date)
  • The Financial Times (Ian Smith)
  • The IMF's Chief Economist, Pierre-Olivier Gourinchas (no date)