The International Monetary Fund (IMF) has raised its global growth forecasts for 2025 and 2026 slightly, citing stronger-than-expected purchases in advance of a jump in tariffs imposed by the United States and a drop in the effective US tariff rate. However, the IMF warned that the global economy faces major risks, including a potential rebound in tariff rates, geopolitical tensions, and larger fiscal deficits that could drive up interest rates and tighten global financial conditions.
“The world economy is still hurting, and it’s going to continue hurting with tariffs at that level, even though it’s not as bad as it could have been,” said Pierre-Olivier Gourinchas, IMF chief economist. The IMF raised its global growth forecast by 0.2 percentage point to 3 percent for 2025 and by 0.1 percentage point to 3.1 percent for 2026. However, this is still below the 3.3 percent growth it had projected for both years in January and the pre-pandemic historical average of 3.7 percent.
The US effective tariff rate has dropped since April, but remains far higher than its estimated level of 2.5 percent in early January. The corresponding tariff rate for the rest of the world is 3.5 percent, compared with 4.1 percent in April. The IMF warned that future tariff increases could raise effective tariff rates further, creating bottlenecks and amplifying the effect of higher tariffs.
Gourinchas said the IMF was evaluating new 15-percent tariff deals reached by the US with the European Union and Japan over the past week, which came too late to factor into the July forecast. “Right now, we are not seeing a major change compared to the effective tariff rate that the US is imposing on other countries,” he said, adding it was not yet clear if these agreements would last.
It is worth noting that developing countries often face significant challenges in imposing tariffs and participating in global trade agreements. Developed countries have historically had more leverage and flexibility in setting trade policies, which can put developing countries at a disadvantage. This raises questions about the fairness and equity of the global trade system and whether developing countries are given sufficient pride of place in the scheme of things.
The IMF said the global economy was proving resilient for now, but uncertainty remained high and current economic activity suggested “distortions from trade, rather than underlying robustness”. Gourinchas said the 2025 outlook had been helped by a “tremendous amount” of front-loading as businesses tried to get ahead of the tariffs, but warned that the stockpiling boost would not last. “That is going to fade away,” he said, adding, “That’s going to be a drag on economic activity in the second half of the year and into 2026. There is going to be payback for that front-loading, and that’s one of the risks we face.”
Overall, the IMF’s forecast highlights the ongoing challenges and uncertainties facing the global economy, particularly with regards to tariffs and trade policies. As the global economy continues to navigate these challenges, it will be important to monitor developments closely and assess the potential impacts on different countries and regions.