IMF raises global economic growth forecast on stronger US demand

WASHINGTON – The International Monetary Fund (IMF) upgraded its global growth forecast for 2025, spurred by stronger-than-expected US demand and slowing inflation worldwide that will let central banks continue to cut interest rates.

The IMF raised its projection to 3.3 per cent in an update to its World Economic Outlook on Jan 17, 0.1 percentage point more than

its previous forecast in October

. It kept the estimate for 2026 unchanged at 3.3 per cent.

The improved growth outlook is mainly because of the United States, which received the biggest upgrade among major economies to its gross domestic product, rising 0.5 percentage point to 2.7 per cent.

At a global level, however, that is largely offset by lower expectations elsewhere.

“The big story is the divergence between the US and the rest of the world,” IMF chief economist Pierre-Olivier Gourinchas said in a briefing with reporters.

Broadly, the US has recovered to its pre-pandemic growth potential, while the euro area and China have not.

Risks to the global growth outlook are overall still tilted to the downside, with the five-year ahead forecast at about 3 per cent, the fund said.

Trump uncertainty

The report comes just days before Donald Trump’s inauguration, and does not incorporate his expected economic plans regarding trade, taxes, immigration and regulations.

While the IMF said most policies could be short-term positive for US and global growth, they carry some medium-term risks.

“Uncertainties are high,” it said in the report.

Extending Trump’s first-term tax cuts, which expire in 2025, would bolster output, with even some “positive spillovers” globally. Yet, over the longer term, that might require larger pullbacks in fiscal policy “that could become disruptive”.

Deregulation could also raise business confidence and encourage investments, juicing the economy. But “excessive rollback” on regulations that limit risk-taking and excessive borrowing could foster a boom-bust dynamic.

Disruptions to the labour force from restricting migration to the US “may permanently reduce potential output” and raise inflation.

As for

potential tariffs

, which Trump has threatened on several countries and regions, the effect could be more severe than in his first term, with higher inflation expectations globally and many economies “more conducive” to faster inflation now than in 2016.

All of that could mean that the Federal Reserve is unable to lower interest rates as fast as previously anticipated, or might even have to raise them, Mr Gourinchas said.

A strengthening of the US dollar could also increase inflation pressures in other parts of the world, particularly emerging markets.

The IMF raised slightly the growth estimate for China to 4.6 per cent for 2025, up 0.1 percentage point from the previous projection, because of fiscal stimulus.

It cut the euro area growth forecast to 1 per cent, a 0.2 percentage point reduction.

The fund also said it expects inflation globally to slow from 5.7 per cent in 2024 to 4.2 per cent in 2025 and 3.5 per cent in 2026, allowing for less restrictive monetary policy to support economic expansion. BLOOMBERG