IMF Raises 2025 Global Growth Outlook, Warns of Trade War Risks

The International Monetary Fund (IMF) raised its global growth forecast for 2025 to 3.2%, up from 3.0% in July, while keeping its 2026 projection steady at 3.1%, according to its World Economic Outlook report released Tuesday.

Moderate Optimism Despite Trade Risks

The IMF’s upward revision reflects more resilient financial conditions and less severe tariff impacts than initially feared. Chief Economist Pierre-Olivier Gourinchas said that recent U.S. trade deals have avoided the worst outcomes of President Donald Trump’s threatened tariff hikes, with minimal global retaliation so far. This marks the Fund’s second growth upgrade since April, when it projected only 2.8% growth amid escalating tariff tensions.

However, the IMF warned that Trump’s latest proposal to impose 100% duties on Chinese goods could sharply reverse progress. The Fund labeled such a move a “significant downside risk,” noting that if tariffs were to rise by 30 percentage points on Chinese exports and 10 percentage points on other major trading partners, global growth could drop by 0.3 percentage points in 2026 and more than 0.6 points by 2028.

Country-Level Forecasts: U.S. and Japan Lead Upgrades

The IMF’s baseline forecast assumes U.S.-China negotiations prevent a full-blown trade war. Under this scenario:

• U.S. growth is expected to reach 2.0% in 2025 (up from 1.9%) and 2.1% in 2026, though still below 2024’s 2.8%.
• The eurozone outlook improved to 1.2%, supported by fiscal expansion in Germany and robust momentum in Spain.
• Japan saw a notable upward revision to 1.1% from 0.7%, boosted by front-loaded exports and stronger wage growth.
• China’s economy is expected to expand 4.8% in 2025 and 4.2% in 2026, unchanged from prior estimates, though the IMF warned that the country’s property sector remains a “major financial stability risk.”

Inflation and Policy Implications

Global inflation projections were largely unchanged at 4.2% for 2025 and 3.7% for 2026, but the IMF highlighted widening divergences among major economies. Inflation forecasts for the U.S. were revised higher as companies begin passing tariff-related costs onto consumers, while price pressures in Europe and Japan continue to moderate.

The IMF emphasized that while growth remains solid, policymakers must stay alert to risks of a renewed trade war, tightening financial conditions, and lingering debt vulnerabilities in emerging markets.