The International Monetary Fund (IMF) has revised its global growth forecast for 2025, citing more benign tariff shocks and financial conditions than initially expected. The revised forecast predicts global real GDP growth at 3.2% for 2025, up from the previous forecast of 3.0% in July and 2.8% in April. This upgrade is attributed to recent trade deals between the US and major economies, which have avoided the worst of the threatened tariffs with little retaliation.
According to the IMF’s World Economic Outlook, global growth has been supported by factors such as a weaker dollar, fiscal stimulus in Europe and China, and an artificial intelligence investment boom. However, the Fund warns that a renewed US-China trade war, threatened by President Donald Trump, could significantly slow output. The IMF chief economist, Pierre-Olivier Gourinchas, noted that while the current situation is “not as bad as we feared,” it is still “worse than we anticipated a year ago, and worse than we need.”
The US-China trade tensions escalated recently when President Trump threatened 100% duties on Chinese goods, prompting concerns of a major trade war escalation. Treasury Secretary Scott Bessent announced that talks are underway to defuse the situation. The IMF estimates that if the threatened tariffs were to materialize, it could cut growth forecasts significantly and add to uncertainty, chilling investment and spending.
In a downside risk scenario, the IMF models the impact of tariffs 30 percentage points higher than current levels on goods from China, and 10 percentage points higher for Japan, the euro area, and Asian emerging markets. The results show that this could cut global growth in 2026 by 0.3 percentage points, increasing to more than 0.6 percentage points through 2028. The IMF also keeps its global headline inflation forecast largely unchanged at 4.2% for 2025 and 3.7% for 2026, with divergence among countries.
The revised forecast highlights the ongoing uncertainty surrounding global trade and the potential risks to economic growth. As the IMF and World Bank annual meetings commence, the international community will be watching closely for developments in the US-China trade situation and its potential impact on the global economy. The situation underscores the need for continued cooperation and dialogue to mitigate the risks of a trade war and promote sustainable economic growth.