The International Monetary Fund (IMF) has raised its near-term global economic forecast but warns that the overall environment remains volatile amid US President Donald Trump’s ongoing trade war.
Global growth is projected to slow from 3.3% in 2024 to 3.2% in 2025 and 3.1% in 2026, the Washington-based organisation says in its World Economic Outlook report on 14 October.
“Prolonged uncertainty, more protectionism and labour supply shocks could reduce growth,” the IMF says.
“Fiscal vulnerabilities, potential financial market corrections and erosion of institutions could threaten stability,” it adds.
Trump’s revised tariffs took effect on 7 August after months of multiple reversals and global market chaos, with more than 90 countries hit with higher levies ranging from 10% to 50%.
The president’s trade war against long-term allies began shortly after he took office on 20 January. In April, he announced sweeping “Liberation Day” tariffs against most countries as part of his “America First” policy that aims to boost manufacturing in the US.
However, the IMF said some extremes of higher tariffs were tempered due to subsequent deals and resets ahead of the 7 August deadline.
Countries that finalised new trade deals before Trump’s August deadline included Japan, South Korea and the European Union, which face a 15% base rate. The UK also signed a trade deal with the US in May and its tariff rate remained unchanged at 10%.
“The world’s economies, institutions and markets have been adjusting to a landscape marked by greater protectionism and fragmentation, with dim medium-term growth prospects and calling for a recalibration of macroeconomic policies,” the IMF notes.
“This apparent resilience, however, seems to be largely attributable to temporary factors, such as front-loading of trade and investment and inventory management strategies, rather than to fundamental strength.”
The IMF adds that front-loading is now unwinding, labour markets are softening, and the “pass-through” of tariffs to US consumer prices appears increasingly likely.
According to the report, advanced economies are forecast to grow by about 1.5% in 2025 and 2026, with the US slowing to 2%. Emerging market and developing economies are expected to moderately expand by just over 4%.
Meanwhile, the IMF expects inflation to decline to 4.2% globally in 2025 and to 3.7% in 2026. One notable exception is the US, where it will be “above target with risks tilted to the upside”.
The US Federal Reserve typically targets an inflation rate of 2% for long-term economic growth and price stability. According to the latest US Consumer Price Index, inflation rose 2.9% in the 12 months to August, up from 2.7% in July, as companies increased prices to offset the cost of tariffs.
“The task ahead is to restore confidence through credible, predictable and sustainable policy actions,” the IMF says.
“Policymakers should establish clear, transparent and rules-based trade policy road maps to reduce uncertainty and support investment and to reap the productivity and growth benefits that more trade brings.”