“The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity,” IMF noted in the reference forecast document.
Global growth may drop to 2.8 per cent in 2025 and 3 per cent in 2026—down from 3.3 per cent for both years in the January 2025 World Economic Outlook Update—corresponding to a cumulative 0.8 pp downgrade, and much below the historical average of 3.7 per cent, the IMF noted.
Growth in advanced economies is projected to be 1.4 per cent in 2025, while euro area growth is projected at 0.8 per cent.
In the reference forecast, growth in advanced economies is projected to be 1.4 per cent in 2025.
Growth in the United States is expected to slow to 1.8 per cent, a pace that is 0.9 pp lower relative to the projection in the January 2025 WEO Update, on account of greater policy uncertainty, trade tensions and softer demand momentum, whereas growth in the euro area at 0.8 per cent is expected to slow by 0.2 pp.
In emerging markets and developing economies, growth is expected to slow down to 3.7 per cent in 2025 and 3.9 per cent in 2026, with significant downgrades for countries affected most by recent trade measures, such as China.
Global headline inflation is expected to decline at a pace that is slightly slower than what was expected in January, reaching 4.3 per cent in 2025 and 3.6 per cent in 2026, with notable upward revisions for advanced economies and slight downward revisions for emerging markets and developing economies in 2025.
Intensifying downside risks dominate the outlook. Ratcheting up a trade war, along with even more elevated trade policy uncertainty, could further reduce near- and long-term growth, while eroded policy buffers weaken resilience to future shocks, the IMF noted.
“Divergent and rapidly shifting policy stances or deteriorating sentiment could trigger additional repricing of assets beyond what took place after the announcement of sweeping US tariffs on April 2 and sharp adjustments in foreign exchange rates and capital flows, especially for economies already facing debt distress,” it noted.
“Broader financial instability may ensue, including damage to the international monetary system,” it said.
Demographic shifts and a shrinking foreign labor force may curb potential growth and threaten fiscal sustainability, it observed.
The lingering effects of the recent cost-of-living crisis, coupled with depleted policy space and dim medium-term growth prospects, could reignite social unrest, it noted.
More limited international development assistance may increase the pressure on low-income countries, pushing them deeper into debt or necessitating significant fiscal adjustments, with immediate consequences for growth and living standards, the IMF document added.
Fibre2Fashion News Desk (DS)
