The International Monetary Fund on Friday, January 17th, published a new version of its forecast for global economic growth which has been revised upward.
Currently, IMF experts are more positive about the prospects of the United States in the context of the rising dynamic of the gross domestic product (GDP) of this country compared to the previous vision of the pace of the corresponding process. At the same time, their expectations regarding the economic systems of countries such as France and Germany have worsened. It is worth noting that, in general, the IMF’s assessment of global GDP increase prospects has become more positive, despite the downward revision of forecasts for individual countries.
In its latest World Economic Outlook, the mentioned organization predicts that global economic growth will be recorded at 3.3% in the current year. It is worth noting that the IMF experts expect a similar increase in the world’s GDP in 2026.
The specified forecast also predicts that global headline inflation in 2025 will be 4.2%. Moreover, the IMF projects that this indicator will decrease next year. Global headline inflation in 2026 is expected to be fixed at 3.5%. The IMF predicts that the corresponding dynamic of the mentioned indicator will become a factor contributing to the normalization of monetary policy. Also, according to the experts of this organization, a decrease in inflation will end the global disruptions of recent years.
It is worth mentioning that the October version of the IMF’s global economic growth forecast for 2025 provided that the corresponding indicator would increase by 3.2%. As for expectations regarding the dynamic of the world’s GDP in 2026, in this case, it is the projection that has remained the same.
The IMF experts said that global economic growth continues to be below the historical average of 3.7%, which was recorded between 2000 and 2019. They also warned world capitals against implementing the practice of unilateral economic measures. In this case, it implies measures such as tariffs, non-tariff barriers, and subsidies that may harm trading partners. Also, in the relevant context, it was noted that such actions could provoke retaliation in the form of specific decisions providing for certain restrictions.
IMF chief economist Pierre-Olivier Gourinchas stated that the mentioned policies rarely contribute to the long-term improvement of domestic prospects. He also noted that such practices can leave every country worse off.
It is also worth paying attention to the fact that has a global nature and wide-scale impact and is that the current state of affairs in the space of geopolitical relations is on a trajectory of consistent deterioration. There are hotbeds of escalation in the system of cooperation between world capitals, which in some cases is already realizable situation, and in some cases a prospect with a high probability of materialization. One of the illustrative forms of the growing geopolitical tension is the relationship between the United States and China. Beijing and Washington have already imposed restrictive measures against each other. The United States has restricted the export of advanced chips and equipment needed to carry out the microcircuits of the corresponding category manufacturing process to China. As part of the retaliatory measures, the Asian country has banned the shipments of certain minerals to the US. It’s worth noting that the relationship between Beijing and Washington is steadily deteriorating. In this case, there is a risk of structural and fundamental degradation of cooperation between the two capitals. Other points of geopolitical tension also continue to be active in the world. Against the background of the corresponding state of affairs, a factor of significant pressure on the global economy is being formed in the current configuration of its existence and the context of further prospects for the historical movement of this system. Moreover, the world’s economy is facing a problem of uncertainty. So far, there is no definitive understanding of what form of existence the world will have as a space for the existence of human civilization in the foreseeable future. In this case, it means primarily the economic, political, and social dimensions of the mentioned space. Against the background of geopolitical tensions, which continue to grow and show no signs or even hints of weakening, there is a risk of a kind of fragmentation of the world. In this case, it implies the prospect of forming political and economic blocs consisting of countries allied with each other. The corresponding blocs will be largely autonomous in the context of the logic of the paradigm of geopolitical rivalry. This means that individual countries will form groups to interact in different areas of activity and take an unfriendly position towards other states that are members of similar alliances. Such a configuration of the global political, economic, and cultural reality is a significant threat to the processes of globalization, which in recent decades has become something like a large-scale idea of the coexistence of world capitals, providing for close cooperation. At the same time, the corresponding scenario is one of the probabilities, but not the guarantee that it will happen. Further geopolitical escalation may provoke fundamental destruction of the global system of cooperation and become the basis for the world’s political, cultural, and economic segmentation, but this state of affairs as a prospect is not inevitable. It is also worth noting that the deterioration of the condition of interaction between countries significantly increases the risk of scaling up the practice of protectionism, which is negatively assessed by the IMF.
The updated global economic growth forecast from the mentioned organization was published a few days before the inauguration of US President-elect Donald Trump, scheduled for January 20. Mr. Trump intends to implement his tariff threat. In this case, there are plans to impose a 10% tariff on most goods imported into the United States. It is worth noting that for products shipped from Mexico and Canada, the corresponding figure, according to Donald Trump’s intentions, should be 25%. He plans to keep this measure in force, which has not yet been implemented, until Ottawa and Mexico City take measures aimed at curbing the importation of drugs and crossing the US border by migrants. Mr. Trump’s intentions also include a 60% tariff on goods shipped from China. Many analysts warn that the implementation of such measures may have a negative effect on the situation in the United States economic system. In this case, it is implied that the tightening of Washington’s tariff policy may provoke an acceleration of inflation in the US. Analysts also note that such measures will increase tensions in the global trade space. Against this background, a threat is emerging to economic prospects both at the global level and within the framework of the situation in individual countries and groups of countries.
IMF analysts said that increased protectionism, for example, in the form of a new wave of tariffs, could exacerbate trade tensions, cause a decrease in investment volumes, become a factor in reducing market efficiency, and provoke a distortion of trade flows and disruption of supply chains that were hurt during the coronavirus pandemic. It was also noted separately that as a result of the implementation of such a scenario, economic growth may suffer both in the near and medium term.
Pierre-Olivier Gourinchas, during a conversation with media representatives, stated the tremendous uncertainty about the future of US policies, which is already a factor affecting global markets. At the same time, he noted that the IMF needs to wait for specifics on this issue to draw clearer conclusions.
It is worth noting that some experts suggest that Donald Trump may use his tariff threat as a negotiating tool with other countries. There is also an opinion that the relevant intentions will be partially implemented, rather than in full. These are just assumptions, the level of realism of which is definitely not the maximum. In the relevant context, it is worth mentioning that during his first presidential term, which lasted from 2017 to 2021, Donald Trump increased tariffs on Chinese goods. The relevant measures affected 818 product categories worth $50 billion. The increase in tariffs has actually formed a situation in the framework of relations between the United States and China that can be described as a trade war.
The IMF said that growing confidence and positive sentiment in the US could boost demand and spur economic growth in the short term, but excessive deregulation, especially in the financial sector, could generate a boom-bust dynamic in the country and have consequences for the rest of the world.
Pierre-Olivier Gourinchas noted that the mentioned organization will carefully monitor any moves of the incoming United States administration to deregulate digital currencies. In this context, he stated the need to ensure adequate oversight of cross-border payments to avoid future claims against the system.
Using a symbolic and metaphorical manner of verbal exposition of thought, Pierre-Olivier Gourinchas noted that the payment system is the blood that irrigates the economy. According to him, if alternative forms of payments arise, these become important in the economy, and at the same time, there is the potential for crashes or runs. Pierre-Olivier Gourinchas underlined that in the mentioned case this is a very fluid environment, but there is the need to be careful if there is a concentration of risks if several actors become critical for the payment system.
The IMF chief economist said the tariffs could make it difficult to get the necessary inputs for businesses. According to him, the immigration restrictions promised by the incoming administration of Donald Trump may lead to labor constraints, which may provoke an increase in costs.
Pierre-Olivier Gourinchas said that higher inflation would prevent the Federal Reserve from cutting interest rates as was envisaged in the financial regulator’s initial action plan. In this context, he also noted that the new US policies are likely to strengthen the dollar and tighten financial conditions in other countries. According to him, the looser monetary policy of the United States, driven by tax cuts and other expansionary measures, may boost economic activity in the near future but later may require more serious fiscal adjustments containing the risk of weakening the role of US Treasuries as a global safe asset and lead to fiscal vulnerability. He noted that the rise in the long-term yields, despite the easing of the Fed’s monetary policy, reflects some market nervousness about future policies.
The IMF has revised upward its forecast for the growth of the United States economy in the current year. Experts of this organization expect that US GDP will increase by 2.7% in 2025. It is worth noting that the October version of the forecast provided for the growth rate of the United States economy in the current year to be half a percentage point lower. The IMF also expects US GDP to increase by 2.1% in 2026. A more positive outlook for economic growth in the United States in 2025 is due to accelerated investment and a robust labor market.
The projection regarding the prospects for economic growth in the eurozone has been revised downwards by experts from the mentioned organization. The IMF expects the region’s GDP to increase by 1% in 2025. The October version of the forecast provided a 1.2% growth in the specified indicator. The IMF also expects the eurozone economy to rise by 1.4% in 2026. Commenting on the revision of the GDP growth forecast in the specified region, the international lender’s experts said that in this case, the factors of impact were the dynamic of the manufacturing industry, which turned out to be lower than preliminary expectations regarding the degree of intensity of the corresponding indicator, and heightened political and policy uncertainty.
Pierre-Olivier Gourinchas stated that the divergence between the United States and Europe is related to structural factors reflecting stronger productivity growth in the US. This dynamic is particularly noticeable in the technology sector. According to Pierre-Olivier Gourinchas, the mentioned divergence will persist if issues such as the business environment and deeper capital markets are not addressed.
The IMF has revised upward its forecast for China’s economic growth in 2025. Experts of this organization expect that in the current year, the GDP of the Asian country will increase by 4.6%. The October version of the forecast provided a 4.5% growth in the mentioned indicator. The IMF expects China’s GDP to increase by 4.5% in 2026. In this case, the reason for the upward revision of the forecast was the fiscal stimulus package unveiled in November. According to Pierre-Olivier Gourinchas, Beijing needs to make domestic demand a bigger engine of economic growth and stop relying solely on external demand.
The IMF has revised down its forecast for GDP increase in 2025 for the Middle East and Central Asia region. This organization predicts that in the mentioned region in the current year, the economy will show growth of 3.6%. The October version of the projection provided for an increase in the specified indicator by 3.9%. The IMF predicts that in 2026 the economy of the Middle East and Central Asia region will grow by 3.9%. In this case, the revision of the projection is related to expectations regarding the prospects of the dynamic of Saudi Arabia’s GDP against the background of voluntary oil production cuts.
The IMF’s forecast for India’s economic growth in the current year remained unchanged. The GDP of the South Asian country is expected to increase by 6.5% in 2025. The IMF also predicts that India’s economic system will maintain the mentioned upward dynamic pace in 2026. It is worth noting that the expected GDP increase of the South Asian country is the highest in the world.
The IMF has revised its economic growth forecast for the United Kingdom in 2025 in a positive sense. The international lender expects UK GDP to increase by 1.6% in the current year. October’s forecast version provided for a growth in this indicator by 1.5%. The IMF predicts that UK GDP will rise by 1.5% next year. In November, the United Kingdom’s economy grew by 0.1%, which was a disappointing result that did not match analysts’ more optimistic projections. Against this background, expectations have increased that the Bank of England will continue cutting interest rates.
The international lender predicts that progress in lowering inflation will continue. In this context, it was noted that factors such as the gradual cooling of the labor market and the expected decrease in energy prices will contribute to the corresponding dynamic amid increased trade tensions. At the same time, the IMF warns of the risk of new inflationary pressures. In this case, it was noted that the realization of the corresponding probability can cause higher-for-longer interest rates and a stronger dollar.
Pierre-Olivier Gourinchas stated that central bankers have successfully assured consumers that they would keep a grip on inflation during the last surge. According to him, this means that monetary policy should be more agile and proactive. He stated that the danger is that some of the credibility of capital may have been eroded. Pierre-Olivier Gourinchas also said that households can be very cautious and very reactive if prices start to rise again.
