Agencies
Global growth is projected to rise modestly this year but will remain below its pre-pandemic average, the International Monetary Fund (IMF) said Friday, flagging a widening economic gap between the United States and European nations.
IMF also warned that the outlook is clouded by President-elect Donald Trump’s promises to slash U.S. taxes, impose tariffs on foreign goods, ease regulations on businesses and deport millions of immigrants working illegally in the United States.
In an update to its flagship World Economic Outlook report, the fund said it expects global growth to hit 3.3% this year, up 0.1 percentage point from its previous forecast in October. It forecasts growth to remain at 3.3% in 2026.
The Washington-based lending agency sees stronger-than-expected growth in the U.S. offsetting downward revisions in Germany, France and other major economies.
But it said global growth remained below the historical average of 3.7% from 2000-2019, and warned countries against unilateral measures such as tariffs, non-tariff barriers or subsidies that could hurt trading partners and spur retaliation.
The IMF expects the global inflation rate to continue decelerating, reaching 4.2% this year and 3.5% in 2026, with prices cooling faster in advanced economies than in emerging markets.
It sees the decline allowing a further normalization of monetary policy and ending the global disruptions of recent years.
The IMF said it raised its growth forecast for the U.S. to 2.7% based on robust labor markets and accelerating investment, an increase of half a percentage point from its October forecast, with growth to taper to 2.1% next year.
The economic picture in the United States stands in stark contrast to Europe, where a sharp downgrade for Germany has dampened expectations for a rebound in growth.
IMF cut its eurozone forecast by 0.2 percentage points to 1.0% for 2025, and by 0.1 percentage point to 1.4% for 2026, citing weaker-than-expected momentum in manufacturing and heightened political and policy uncertainty.
“Among advanced economies, the interesting development here is the strength and resilience and growth of the U.S. economy,” IMF chief economist Pierre-Olivier Gourinchas said “The labor market has been strong, there is strong demand, private demand is robust, there is good confidence,” he said.
Gourinchas said the divergence between the U.S. and Europe was due to structural factors, reflecting stronger U.S. productivity growth particularly – but not exclusively – in the technology sector. It would linger, unless issues such as the business environment and deeper capital markets were addressed.
Germany’s economy was forecast to grow just 0.3% in 2025, versus the 0.8% growth projected in October, with growth edging up to 1.1% in 2026, a downward revision of 0.3 percentage points.
France also had its forecast cut to 0.8% for 2025 from 1.1% in October, and to 1.1% for 2026 from 1.3%.
“A number of countries, especially those who are concentrated in manufacturing and goods production, are still suffering,” said Gourinchas.
In Türkiye, IMF downgraded its outlook for the economy to 2.6% for this year, compared to 2.7% estimate in its October report. It kept its projection for 2026 at 3.2%.
The fund expects global economy to have expanded by 3.2% in 2024, unchanged from its earlier report. It cut its projection for the Turkish economy to 2.8% from 3%.
The IMF nudged its China growth forecast up by 0.1 percentage point to 4.6% for this year, and by 0.4 percentage point to 4.5% for 2026.
The slight upgrade was due to the Chinese government’s recently announced package of fiscal support to help prop up the slowing economy, which is struggling with an ongoing property market slump and uncertainty about trade policy once Trump takes office next week.
The slowdown in growth in the world’s second-largest economy is leading to something of a “rebalancing” among emerging markets, Gourinchas said, with countries including India – which the IMF expects to grow by 6.5% this year and next – playing a more important role.
The fund cut the forecast for the Middle East and Central Asia region by 0.3 percentage point to 3.6% in 2025 and by the same amount to 3.9% for 2026, largely due to a downward revision for Saudi Arabia given recent voluntary oil production cuts.
IMF left its outlook for growth in Japan unchanged this year and next, and slightly increased its outlook for the United Kingdom in 2025.
In Russia, which is affected by the ongoing and costly war in Ukraine, the IMF expects growth to slow sharply from 3.8% in 2024 to 1.4% this year, and to 1.2% in 2026.
Economic activity is expected to rise more quickly in Latin America, the IMF said, adding that it also expected growth in sub-Saharan Africa to pick up this year.
One of the risks to the IMF’s forecasts is policy uncertainty in the U.S., where Trump is preparing to return to the White House as of Monday.
Trump has proposed a 10% tariff on global imports, a 25% punitive duty on imports from Canada and Mexico until they clamp down on drugs and migrants crossing borders into the U.S., and a 60% tariff on Chinese goods.
In a blog post that accompanied the release of the report, Gourinchas, wrote that the policies Trump has promised to introduce “are likely to push inflation higher in the near term.”
Big tax cuts could overheat the U.S. economy and inflation. Likewise, hefty tariffs on foreign products could at least temporarily push up prices and hurt exporting countries around the world.
And mass deportations could cause restaurants, construction companies and other businesses to run short of workers, pushing up their costs and weighing on economic growth.
The IMF did not include the Republican president-elect’s policy proposals in its forecasts and instead based its projections on existing U.S. policies.
“An intensification of protectionist policies, for instance in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows and again disrupt supply chains,” the IMF said, noting growth could suffer both in the near and medium term.
Gourinchas told Reuters there was clearly “tremendous uncertainty” about future U.S. policies that was already affecting global markets, but the global lender needed to wait for specifics to draw clearer conclusions.
