Global outlook: Modest upgrade amid ongoing uncertainty
The IMF now expects global growth to reach 3% in 2025 and 3.1% in 2026, a 0.2 and 0.1 percentage point increase, respectively, from the April 2025 projections. Despite the upgrade, growth remains below the pre-pandemic historical average of 3.7%, underscoring persistent structural and policy challenges.“Global growth is expected to decelerate, with apparent resilience due to trade-related distortions waning. At 3.0% in 2025 and 3.1% in 2026, the forecasts are below the 2024 outcomes of 3.3% and the pre-pandemic historical average of 3.7%, even though they are higher than the April reference forecast. The upward revision for 2025 is quite broad based,” the IMF said in its report.
The upgrade primarily reflects stronger-than-expected trade and investment in early 2025, driven by front-loading of activity ahead of anticipated tariff hikes, as well as improved financial conditions and lower-than-expected average US tariff rates. These conditions have temporarily boosted global demand, although the IMF notes that this momentum is likely to unwind in the second half of the year.
“Following an unprecedented escalation in tariffs imposed on the rest of the world in April, the United States partly reversed course, pausing the higher tariffs for most of its trading partners. This, and a de-escalation of trade tensions with China in May modestly reduced the US effective tariff rate from 24% to about 17%. Despite these welcome developments, tariffs remain historically high, and global policy remains highly uncertain, with only a few countries having reached fully-fleshed out trade agreements. This modest decline in trade tensions, however fragile, has contributed to the resilience of the global economy so far,” said Pierre-Olivier Gourinchas, Chief Economist at the IMF.
Emerging economies
In emerging markets and developing economies, growth is expected to be 4.1% in 2025 and 4% in 2026. Relative to the forecast in April, growth in 2025 for China is revised upward by 0.8 percentage point to 4.8%. This revision reflects stronger-than-expected activity in the first half of 2025 and the significant reduction in US–China tariffs, the IMF said.
“This resilience is welcome, but it is also tenuous. While the trade shock could turn out to be less severe than initially feared, it is still sizeable, and evidence is mounting that it is hurting the global economy. For instance, compared to our pre-April 2 forecast, global growth is revised downwards by 0.2pp (percentage points) this year. At around 3%, global growth remains disappointingly below pre-COVID average,” said Gourinchas.
Global inflation is expected to continue to decline, with headline inflation falling to 4.2% in 2025 and 3.6% in 2026. This is virtually unchanged from the April estimates, with trends of cooling demand and falling energy prices remaining in place, the report added.
“The overall picture hides cross-country variation in forecasts, however. The tariffs, acting as a supply shock, are expected to pass through to US consumer prices gradually and hit inflation in the second half of 2025. Elsewhere, the tariffs constitute a negative demand shock, lowering inflationary pressures,” the report said.
The IMF warns that risks to the global outlook remain skewed to the downside, including:
- A potential resumption of tariff increases, particularly after current pauses expire in August.
- Geopolitical tensions, especially in the Middle East or Ukraine, could trigger new supply shocks and raise commodity prices.
- Fiscal vulnerabilities in economies with high public debt, such as the US, could disrupt financial markets.
Conversely, the report notes that a breakthrough in trade negotiations could boost confidence and investment, improving medium-term prospects.“In too many countries, the combination of high public debt and still elevated public deficits continues to be a cause for concern. The lack of fiscal space makes these countries especially vulnerable to a sudden tightening in financial conditions that increase term premia. Such tightening becomes even more likely if central bank independence – a cornerstone of macroeconomic, monetary and financial stability- is undermined,” added Gourinchas.
Developed economies
Growth in advanced economies is projected to be 1.5% in 2025 and 1.6% in 2026. In the US, with tariff rates settling at lower levels than those announced on April 2 and looser financial conditions, the economy is projected to expand at a rate of 1.9% in 2025, the IMF said. This is 0.1 percentage point higher than the April reference forecast, with some offset from private demand cooling faster than expected and weaker immigration.
Growth is projected to pick up slightly to 2% in 2026, with a near-term boost from the OBBBA (One Big Beautiful Bill Act) kicking in primarily through tax incentives for corporate investment. The IMF staff estimates that the OBBBA could raise US output by about 0.5% on average over the World Economic Outlook horizon through 2030, relative to a baseline without this fiscal package, said the report.
In the euro area, growth is expected to accelerate to 1% in 2025 and to 1.2% in 2026, while in other advanced economies, growth is projected to decelerate to 1.6% in 2025 and pick up to 2.1% in 2026.
Policy priorities
The IMF emphasises that policy clarity, predictability, and structural reform are essential to sustaining global growth amid persistent uncertainty. Governments are urged to reduce trade policy uncertainty through transparent frameworks and cooperative agreements, particularly as temporary tariff pauses near expiration.
Fiscal policy should balance the need for near-term support with credible medium-term consolidation plans, especially in high-debt economies, it said.
Monetary authorities must navigate complex trade-offs, as tariff-induced supply shocks could raise inflation even as growth risks persist. Central banks are advised to maintain focus on price and financial stability, using targeted interventions when warranted, added the report.
Across all economies, the IMF stresses the importance of restoring fiscal buffers, investing in upskilling and productivity-enhancing reforms, and strengthening international coordination to mitigate spill-overs from trade and geopolitical tensions.
Also read: Asian Development Bank lowers India’s growth forecast for FY26 over risks from US tariffs
