IMF lifts global forecast on front-loading and tariff easing
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The news: The IMF increased its 2025 global growth forecast by 0.2 percentage points to 3%, and its 2026 forecast by 0.1 points to 3.1%, citing front-loaded trade activity and lower-than-expected US tariffs.
The numbers: The economic growth forecast is about 0.2 percentage point below its pre-April forecast, and still below the pre-pandemic average of 3.7%. The IMF attributed the revision to a lower effective US tariff rate, a weaker dollar, and early importing by companies ahead of new levies.
The United States, China and the euro area saw some of the most significant forecast revisions in the IMF’s latest outlook. US growth is now expected to reach 1.9% in 2025, up from 1.8% in April, and 2% in 2026, up from 1.7%.
China’s forecast was lifted by 0.8 percentage points to 4.8% for 2025, helped by a reduction in tariffs following a temporary truce with the US and stronger-than-expected exports within Asia.
The euro area is now expected to grow 1% in 2025, a 0.2 percentage point increase, driven largely by a surge in Irish pharmaceutical exports to the US.
Australia is now projected to grow 1.8% in 2025 and 2.2% in 2026, up 0.2 and 0.1 percentage points from the IMF’s previous forecasts, respectively.
The context: The IMF’s April forecast had reflected concerns about steep tariff hikes announced by US President Donald Trump, including a universal 10% tariff and additional levies up to 50%.
Since then, the IMF is forecasting a lower effective tariff rate in the US (measured as import duty revenue as a proportion of goods imports) of 17.3%, down from 24.4%, as temporary truces or trade deals have been reached with some trading partners.
The IMF also noted that much of the current momentum is due to short-term stockpiling and warned it may fade in the second half of the year.
What they said: Pierre-Olivier Gourinchas, IMF chief economist, said that despite the improved outlook relative to April, “trade tensions are hurting the global economy.”
"Risks remain tilted to the downside," he added. "A breakdown in trade talks or renewed protectionism could dampen growth globally and fuel inflation in some countries. Persistent uncertainty may weigh on investment while geopolitical tensions and fiscal vulnerabilities pose additional threats. Financial conditions have ease but they could tighten abruptly, especially in case of threats to central bank independence.”
"On the upside, breakthroughs to trade negotiations could boost confidence and structural reforms could lift long term productivity."
The source: IMF
