The International Monetary Fund (IMF) on Friday raised its 2025 global growth forecast by a tenth of a percentage point, with stronger-than-expected growth in the United States offsetting downward revisions in Germany, France and other major economies.
In its most recent World Economic Outlook, the IMF projected global growth of 3.3% in both 2025 and 2026, and said global headline inflation would moderate to 4.2% in 2025 and 3.5% in 2026, allowing further normalization of monetary policy and would put an end to the global disruptions of recent years.
But he said global growth remained below the historical average of 3.7% between 2000 and 2019, and warned countries against unilateral measures such as tariffs, non-tariff barriers or subsidies that could harm trading partners and spur retaliation.
Read: Trump’s tariffs: how does he plan to implement them?
Such policies “rarely improve domestic prospects in a lasting way” and can leave “all countries worse off,” said IMF chief economist Pierre-Olivier Gourinchas in a blog published this Friday.
The new IMF forecast comes days before the inauguration of US President-elect Donald Trump, who has proposed a 10% tariff on global imports, a punitive 25% tariff on imports from Canada and Mexico until to crack down on drugs and immigrants crossing the borders into the United States, and a 60% tariff on Chinese products.
“An intensification of protectionist policies, for example in the form of a new wave of tariffs, could exacerbate trade tensions, decrease investment, reduce market efficiency, distort trade flows and again disrupt supply chains,” said the IMF, noting that growth could be affected in both the short and medium term.
Gourinchas told Reuters there was clearly “tremendous uncertainty” about future US policies that were already affecting global markets, but that the global lender needed to wait for specific details to draw clearer conclusions.
Rising confidence and positive sentiment in the United States could boost demand and stimulate growth in the short term, but excessive deregulation, especially in the financial sector, could “generate boom and bust dynamics for the United States in the long term, with repercussions for the rest of the world,” the IMF wrote.
Digital Currency Oversight
Gourinchas said the IMF would carefully analyze any moves by the incoming US administration to deregulate digital currencies, and highlighted the need to ensure adequate oversight of cross-border payments to prevent future “runs” on the system.
Read: Trump’s tariffs would force Canadian companies to raise prices
“The payments system is the lifeblood of the economy, and if alternative forms of payments emerge, and these become important in the economy, there is also the potential for collapses or runs,” he said.
“It is a very fluid environment, but you have to be careful if there is a concentration of risks, if a few actors become critical to the payments system,” he said.
Tariffs could make it harder for companies to obtain needed inputs, leading to higher prices, and restrictions on immigration, also promised by the incoming Trump administration, could lead to labor restrictions, which could also drive up costs, he said.
Higher inflation would prevent the Federal Reserve from cutting interest rates as initially planned, he told reporters.
He added that new US policies would also likely strengthen the US dollar and tighten financial conditions elsewhere.
Looser monetary policy in the United States, driven by tax cuts and other expansionary measures, could boost economic activity in the short term, but could require larger fiscal adjustments later that could weaken the role of US Treasuries as a global safe asset and lead to fiscal vulnerabilities, the IMF said.
“The rise in long-term yields in the United States, despite the Fed’s easing, reflects some nervousness in the market about future policies,” Gourinchas said at a news conference.
Divergent trends
The IMF raised its growth forecast for the United States to 2.7% based on strong labor markets and accelerating investment, an increase of half a percentage point from its October forecast, and that growth would slow to 2.1% next year.
It reduced its forecast for the euro area by 0.2 percentage points to 1.0% for 2025, and by 0.1 percentage points to 1.4% for 2026, citing weaker-than-expected momentum in the manufacturing sector and greater political and policy uncertainty.
Lee: China and the US can be partners and friends from ‘a new starting point’: Xi to Trump
Gourinchas said the divergence between the United States and Europe was due to structural factors, reflecting higher productivity growth in the United States, particularly in the technology sector, and would persist unless issues such as the business environment and deepening were addressed. of the capital markets.
The IMF raised its growth forecast for China by 0.1 percentage point to 4.6%, and by 0.4 points to 4.5% for 2026, citing a fiscal stimulus package presented in November.
Gourinchas said China notified the IMF late Thursday that its economy would grow 5% in 2024, a “positive surprise” compared to the IMF’s forecast of 4.8%.
But he said Beijing still needs to make domestic demand a more important driver of its growth and stop relying solely on external demand.
The IMF lowered the forecast for the Middle East and Central Asia region by 0.3 percentage points to 3.6% in 2025 and by the same amount to 3.9% for 2026, largely due to a downward revision for Saudi Arabia given recent voluntary oil production cuts.
Disinflation continues
The IMF said progress in reducing inflation was expected to continue, helped by the gradual cooling of labor markets and an expected decline in energy prices.
But new inflationary pressures could emerge fueled by higher trade tensions that could result in higher interest rates for longer and strengthen the dollar.
In a blog accompanying the outlook, Gourinchas said central banks had managed to reassure consumers that they would keep inflation under control during the latest surge, but that expectations could lose their firmness if price pressures re-emerged. so soon after the recent increase.
That means monetary policy would have to be more “agile and proactive,” he said.
“The danger is that some of that … credibility capital has been eroded,” he said, noting that households could be “very cautious and very reactive” if prices started to rise again.
With information from Reuters
Follow us on Google News to always stay informed
