IMF Lifts Global Growth Outlook but Warns of Lingering Tariff Risks

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The International Monetary Fund (IMF) has revised its global economic growth forecasts slightly upward for 2025 and 2026, driven by unexpected resilience in consumer demand and accelerated purchases ahead of impending US tariff hikes. However, the IMF cautioned that the recovery remains fragile, with looming trade tensions and fiscal imbalances threatening to tighten financial conditions globally.

Growth Bump Driven by Pre-Tariff Spending

According to its July update to the World Economic Outlook, the IMF raised its global growth projection for 2025 by 0.2 percentage points to 3.0%, and for 2026 by 0.1 points to 3.1%. Though a modest improvement, these figures still fall below January’s forecasts and the pre-pandemic average of 3.7%.

The uptick was largely attributed to businesses accelerating imports ahead of an August 1 US tariff hike, temporarily boosting activity. The effective US tariff rate dropped from 24.4% to 17.3%, offering a short-lived reprieve. But IMF Chief Economist Pierre-Olivier Gourinchas warned the benefits of front-loading would wane, dragging down activity in late 2025 and into 2026.

Tariff Volatility, Inflation Pressures Remain Key Threats

Despite the temporary momentum, risks remain elevated. The IMF pointed to future tariff increases not yet priced into its forecast, ongoing geopolitical tensions, and swelling fiscal deficits that may pressure interest rates upward.

The US has imposed sweeping tariffs ranging from 10% to 50% on a range of goods, with more pending. Simulations show that if the maximum announced tariffs are fully enacted, global growth in 2025 could drop by 0.2 percentage points.

The IMF also noted that global inflation, though easing, will likely remain above target in key markets such as the US. Meanwhile, the depreciation of the US dollar—a rare dynamic during trade tensions—is amplifying tariff impacts abroad.

Regional forecasts saw modest upgrades: the eurozone at 1.0% growth in 2025, China at 4.6%, and US growth at 1.9%. However, these gains are undercut by structural trade distortions and short-term fiscal policies, the IMF emphasised.